Tuesday 23 July 2024
  • La Cimbali

Coffee futures markets recover from early losses and close on a positive note on weather updates

The initial bearish momentum generated by Brazil's exceptional export results – contained in a report released by Cecafé on Tuesday, after the markets close – lost steam later in the session and fresh weather news from coffee producing countries helped to reverse the trend, bringing moderate gains after three sessions in the red

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MILAN – Nervousness and volatility continue to characterise the coffee futures markets, which returned to positive territory yesterday, recouping their initial losses. September – now the most traded contract on both exchanges – gained 1.5% in New York and 0.8% in London to close at 224.85 cents and $4,086 respectively.

The initial bearish momentum generated by Brazil’s exceptional export results – contained in a report released by Cecafé on Tuesday, after the markets close – lost steam later in the session and fresh weather news from coffee producing countries helped to reverse the trend, bringing moderate gains after three sessions in the red.

The impact of the weather variable – exacerbated by the announced return of La Niña, expected between the end of summer and the beginning of autumn – remains strong. Where are the markets heading?

Money managers piled up long positions in coffee futures recently, but their moves from now on could create some downward pressure to prices in the short term, said Marcelo Moreira, who follows coffee markets for Archer Consulting, in an interview with Bloomberg.

He noted investors are also watching the upcoming expiration of July arabica options on Wednesday, and there’s been a large open interest for some put options.

“While we expect the near term to remain bumpy, our longer-term forecast remains moderately bullish,” Daria Efanova, head of research at Sucden Financial, said in a Monday report.

“A lot will hinge on weather patterns in the coming months,” Efanova said. “We remain cautious about potential heat waves and heavy rains that could significantly alter arabica’s and robusta’s price narrative.”

Sucden maintains its estimate for Brazilian production in 2023/24 of 66 million bags, with domestic consumption at 22 million.

For 2024/25 (i.e. the current harvest), the French broker forecasts a crop of 69 million bags, but warns that the harvest could be affected by lower yield and smaller bean size observed in early field reports. The situation on the logistics front should also be monitored.

As for Vietnam, Sucden considers any precise assessment of the 2024/25 crop to be premature.

With regard to this year’s harvest, it has revised downwards its estimate by 2 million bags to 27 million. A recent insider survey estimates Vietnam’s 2023/24 harvest at 27.5 million bags.

Meanwhile, new updated customs statistics show that Vietnam’s exports in May plunged 47.8% from April to 1,322,633 bags, reaching the lowest level for the month since 2009.

During the first eight months of coffee year 2023/24, exports fell by 6.43% to 19,771,466 bags.

The drop in shipments reflects reduced availability, but also a reluctance to sell on the part of growers, who are well financed and able to wait for the most favourable moment to release the remaining stocks in storage.

On the weather front, the southwest monsoon has brought moderate to heavy rainfall to the Central Highlands over the past few days.

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