By Marcelo Fraga Moreira, who writes this report on coffee as an Archer Consulting contributor.
We had a calmer week with the Dec-20 contract, oscillating only 525 points between the minimum and maximum (between 109.05 and 114.40 cents per pound). Between the Wednesday of the previous week and the Tuesday of that week, the funds liquidated approximately -4,000 lots, contributing to the market trading below 110.00 cents per pound (something that has not happened since the last 27 July)! Coincidentally on Wednesday, the Real reached a “pinch” of 5.60 R $ / US $ (reaching the maximum on Thursday @ 5.6237 R $ / US $ and ending the week @ 5.55 R $ / US $). With the price recovery in the last two trading sessions of the week, we believe that the funds should be bought again between + 38 / 40,000 lots and in no hurry to settle in the short term.
On Wednesday, when the prices for Dec-20 reached the low of the week when it broke and sustained above 110.00 cents per pound, the technical indicators that indicated the “over-sold / oversold” market reversed giving a new buyer signal in the short term. On Friday, Dec-20 ended at the highs of the week @ 114.30 cents per pound! Will we have another explosive end of the year as we saw in December 2019?
We still have news that some warehouses are full, with lines of trucks to unload, with stays between 2-6 days (proving that the harvest really was very good with an estimated production between 67-70 million bags)! On the other hand, the flow of exports remains steady with the regularization of containers and road freight under control.
So, why are we “optimistic in the short term”? Funds! Funds again! The weather forecast for the next 10 days indicates little rainfall in the main Brazilian producing areas (according to a report by World Weather, Inc). The market is already concerned with prolonged drought and possible irreversible damage for the 21/22 harvest! Brazilian producers are well sold and without "ammunition" to continue selling in the short term against Dec-20. The Real may appreciate by returning to seek the 5.00 R $ / US $ (Brazilian political framework is calmer with the government, getting composition with the presidents of the Chamber and the Senate for the approval of the reforms and guarantees to respect the spending ceiling) .
The next short-term objective will be for Dec-20 to break again in the coming days the strong resistance of the 50-100-200 day moving average congestion zone (which is accumulated between 116.50-119 cents per pound). Weight)! Should this break happen, we could see the Dec-20 again fetching 130-140.00 cents per pound!
Returning to talking about climate, according to the same report by World Weather Inc., the weather conditions remain favorable for the next days, with rains in all the main producing countries, from Indonesia, India, Africa (Ghana, Nigeria, Cameroon, Ethiopia, Uganda, Kenya, and Tanzania). In addition to the production zones in Vietnam, Mexico, Central America, and Colombia, Venezuela and Peru.
So, be careful with short positions! Go back to protection by buying “Call-Spreads” at Dec-20 (for example Call-Spread 125-150 cents per pound. And for crop 21/22 and 22/23, if prices for Sep-21 / Sep-22 give the opportunity to set in Reais / bag above 750/800 R $ / bag do not miss the opportunities!
- Although we always call attention to leveraged operations, with accumulators, with structures that “appear / disappear / fold” for both PRODUCT and EXCHANGE, some interesting structures are being offered in the market.
However, DON'T DO CRAZY, DON'T TAKE UNNESSARY RISKS. DO NOT COMMIT MORE THAN 10% OF YOUR POSITION WITH THESE STRUCTURES (BECAUSE IF THEY DOUBLE, APPEAR / DISAPPEAR THE LOSS CAN BE BIG). AND, THE SPREADS ARE VERY NEGOTIATED WITH THE PROVIDERS BECAUSE IN THESE STRUCTURES WITH A LITTLE LIQUIDITY THEY YES EARN A LOT OF MONEY ON THE PRODUCERS 'BACK!
A great week everyone!
Marcelo Fraga Moreira *
** “Call” = Call option
** “Put” = Put ​​option
** “Call-Spread Purchase” = simultaneous purchase and sale of 2 Call Options buying the Option with the lowest exercise price selling the Option with the highest exercise price);
** “Call-Spread Sale” = simultaneous sale and purchase 2 Call Options selling the Option with the highest exercise price and buying the Option with the lowest exercise price);
** “Put-Spread Purchase” = simultaneous purchase and sale 2 Put Options buying the Option with the highest exercise price and selling the Option with the lowest exercise price);
** "Put-Spread Sale" = simultaneous sale and purchase 2 Put Options selling the Option with the highest exercise price and buying the Option with the lowest exercise price);
« Back to index