COFFEE MARKET - WEEKLY COMMENT - MARCH 9-13, 2020 *
Stock exchanges around the world suffered losses in some cases of up to 20% during the week, and in the United States last Thursday had the biggest drop in the market since the fateful “black-Monday” in 1987.
The Organization World Health Organization declared the COVID-19 pandemic after the virus spread to all continents and reached 114 countries.
The exponential growth of contagion puts health systems at risk as a flood of cases can exceed the number of hospital vacancies and equipment needed for the most critical patient situations.
Governments in responsible countries are acting quickly to try to dilute the incidence of flu, with schools suspending classes, events with large crowds being canceled and the imposition of travel restrictions.
Central banks have been injecting more liquidity into economies to try to mitigate the impact, however, a decline in economic growth is inevitable - the size will depend on how long people will have to stay at home.
Assuming the figures released by China, we have at least sixty days for the contamination rate to fall, which time it took the country to contain the outbreak.
The top three commodity indices were knocked out, with the S & PGSCI reaching its lowest point since February 2016, BCOM looking for the low of July 1986 and the CRB trading at the levels of November 2002.
Coffee in New York tried to hold on , rehearsed a rise, but succumbed to widespread pressure, partially influenced also by the US dollar trading above R $ 5.00.
The physical movement had occasional improvements, but in the origins the reduced availability in no way changes the firm differentials and in the destination the stocks are being used to replenish the momentary stocking made by scared consumers and forced to stay at home.
It is difficult to imagine that consumption will not be affected globally since in mature and traditional markets, such as Italy, for example, coffee shops and restaurants make a significant contribution to the disappearance of coffee.
The most optimistic believe that domestic consumption will compensate for losses from consumption away from home, but it seems unlikely to happen in the order of one to one.
The drop in exports, on the other hand, whether due to a decrease in the frequency of shipping routes or the availability of equipment, can accelerate inventories loaded outside the origins, even causing a drop in certificates and even greater tightening of spreads.
It is not easy to predict what will happen, given that the event is new and there is no recent parallel to serve as a comparison.
The measures adopted by Donald Trump, announced in the last thirty minutes of American stock trading, were well received and the coordination with the private sector seems to give the necessary dynamism to soon go through this huge scare.
I hope that the same will happen in Brazil and that we will all come out stronger and more aware of this episode.
If the optimism experienced by the rapid gain of the S & P500 in the last hour - and also of oil prices with the disclosure of purchases to the American government reserve - spreads to other markets, perhaps coffee will continue to sustain above $ 1 per pound .
A great week and good deals to all,
Rodrigo Costa *
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