CoffeeNetwork (New York) – Following the frost that occurred on July 6th and 7th, 2019, CoffeeNetwork has decided to dig up the past and examine the differences between the last major frost event in 1994 and now.
CoffeeNetwork delivers this analysis in a new special report, “Changes in the Global Coffee Market and Brazilian Production Since the Frost of 1994.”
Additionally, we sat down with for an interview INTL FCStone’s Senior Vice President of Trading, Albert Scalla, who was a desk broker on the coffee team at the time of the frost in 1994. He had been in the business just under two years at the time.
CoffeeNetwork: How did you know about the frost in 1994?
Albert Scalla: We were called on Sunday morning June 26 by a few of our customers in Brazil. They began to drive through their farms and those that had access would flyover plantations.
CN: What was the reaction of the market in 1994 when the news of the frost in Brazil came out?
AS: At first no reaction. Knowing the frost reports, we came into the office at 3am in the morning of June 27th to be ready for the opening of the London Robusta Market. Normally we did not come in the office for the London trading. A few of the customers that were in Miami at the time came into the office as well for the opening.
The London terminal market, September 1994 futures contract, opened weaker and at one point was trading $7 to $10 lower from the previous close. The London brokers at the time of the opening were not aware of the Brazil situation. We begun buying actively the opening to cover customer positions in NY. Eventually to be closed out with the Arbitrage trade.
CN: How long did it take for the news to reach the whole market?
AS: It took some time after the London market opened for prices to react. This only happened when Reuter did publish a RED flash alert advising 40% of the crop damaged by frost in Brazil. London exploded to the upside prior the close before the lunch break in the London Market.
London finished the morning session almost $900 USD higher
CN: How long did they take to assess the total damage?
AS: Well, by that morning reports were circulating of damages of 40%, within a 24hr period of the frost hitting. In retrospect and in comparison, to this past frost event, one now wonders.
CN: How was the coffee market in 1994 versus now?
AS: Severely different. To start we were still trading in the Open Outcry mode in the Trading Pits of the Exchange, today we are fully electronic. Emails were just beginning to be used. We did not have Whatapp. The internet was in its infancy. Most offices were still using DOS on their computers. Cell phones were still in their infancy if we compare them to todays capabilities. Pictures could not be sent over the phones.
Two different markets. In January of 1997 the Exchange, now named the Intercontinental Exchange (ICE) became Electronic. Volumes exploded by a factor of 3 to 5 times. Whereas in 1994 a large volume day was 20,000 contracts, today could be considered extremely low. This year we have not had one single session below 25,000 contracts. And numerous sessions this year where we traded above 100,000 contracts with the record high of 135,000 contracts back in August of 2018. Open interest has at times reached 7 times the levels of 1994. With the record OI at 357,447 open contracts on April 1st 2019.
CN: What was the feeling of the market before and after the frost in 1994?
AS: I remember the market going into the close of that Friday June 24th settling lower. 15 to 20 minutes prior to the close at 1:30 pm we received rumors of snowfall in Santa Catarina. We had a couple of speculators and commercial traders that bought the market on this rumor. Did very well come Monday morning.
At the time very difficult to gauge the weather. We had to speak with meteorologists over the phone. No email weather updates or pretty charts. We barely had internet. Few had emails. No Whatsapp!!, which today has made a huge difference. Some good, but also very difficult to differ the true news from the fake news. Communications were limited. Long distance calls were still very expensive. Limited cell phones availability. No iPhones, Samsungs or any type of smartphones. Pictures were still 35mm Kodak Films!. Communications were slow. We were still using Faxes!!!
CN: What was the feeling of the market before and after the frost in 2019?
AS: Before the frost, there were several weather forecasters posting their reports. Online and via emails. Everyone resending the reports via WhatsApp and Skype as well as emails. Many times altering the original reports and wordings. Everyone has now become a weather forecaster.
Sunday morning July 7th, shortly after sunrise, all pictures were circulating the planet with all the effects, or perceived effect of frost damages.
Pictures are not just the norm, we now even have instant videos with commentaries.
During the market open on Monday July 8th, almost 3,000 contracts change hand within a couple of minutes. Market opens 200 points higher, reaches a high of 415 points higher shortly thereafter only to fall back and settle the day’s session 365 points lower than the previous session, as immediate reports circulated that the damages were not as great as previously expected or shown by all the WhatsApp pictures circulating. Since then the market has fallen back 13% from the highs in 3 weeks.
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