Marcelo Fraga Moreira (Archer Consulting)
According to data released by the Council of Coffee Exporters in Brazil (Cecafé) “BRAZIL HITS A RECORD IN COFFEE EXPORTS IN OCTOBER, ON THE HIGHEST OF ALL TIMES FOR THE MONTH. Brazil exported a record 4.092 million 60 kg bags of coffee in October, the second highest monthly volume of the year, considering the sum of green, soluble and roasted & ground coffee. The result corresponds to an increase of 11.5% in comparison with October 2019. Foreign exchange revenue was R $ 2.9 billion, also the highest ever for the month of October, with a growth of 49.4% in compared to the same period last year ”.
Exports are expected to remain firm in the coming months of November and December with replenishment of inventories in the main consumer and industrial centers, and we will probably have a “squeeze” in the offer and price increases in Brazil until the beginning of the next crop 21/22. Producers are already well capitalized, sold, and remain reticent, awaiting prices above 600 R $ / bag.
Daily volumes traded on the New York Stock Exchange increased again, averaging around 70,000 lots / day. The greatest concentration was in the rollover of the Dec-20 contract to March 21. Probably the funds returned to purchases (we will only have the official figures published next Tuesday, November 16, due to the US holiday).
Despite the strong appreciation of + 3.60% of the R $ against the US $ on Monday (with the consolidation of Biden's victory as the new US president), and the euphoria that took hold in the main world exchanges, agricultural commodities and oil, it depreciated in the same session (closing the gap left at the opening). This famous turnaround, also known in the market as "violated" (when the market seems to go in one direction and suddenly takes everyone by surprise with an unexpected reversal on the same day) caught many people in the balance and many were hurt by the famous operations “exchange rate accumulators”.
Real ended again at the highs of the week, trading on Friday @ 5.52 R $ / US $ and ending @ 5.47 R $ / US $. Currency remains an unknown because the Brazilian political / fiscal field is dictating the rules of the game and making the market very nervous (especially after statements that are not responsible for our politicians, again talking about the currency risk reaching 7 R $ / usd and the hyperinflation).
On the coffee side, Set-21 worked between the low and high @ 113.25 and 118.35 cents per pound, closing the week @ 117.20 cents per pound. The first strong resistance continues at the 50-day moving average @ 118.50 cents per pound weight and major support @ 114.50 cents per pound weight.
On the climatic side, we continue to accompany the heavy rains in Vietnam; tropical storm risk in Nicaragua and Honduras; rains in Colombia and Venezuela and some delays in the harvest. And Brazil with irregular rains in the main producing regions. Concern remains how / if the plants will be able to recover from the severe drought and if the grains will develop, grow producing a 21/22 crop of good quality and quantity.
We remain bullish in the short / medium term, with the possibility of Sep-21 trading again above 120/125 cents per pound. Funds continue to buy, producers have already set enough for the next 21/22 harvest, and this movement we know how it ends ... Market goes up, stops are triggered, positions are liquidated and, suddenly, the market plummets 2-3,000 points!
We still have many uncertainties, many variables to continue monitoring / following up in the coming months. For example: Will the Real go back to 5 / 4.50 R $ / US $ or will it devalue and reach 6.50 / 7.00 R $ / US $? Will we have a break in the current crop in Central America, Vietnam? What will be the size of the break and the projections for the next crop 21/22 in Brazil? Reduction between 10-15% and a harvest of less than 65 million bags? What about world consumption? Will it continue to increase or will we have new lockdowns in Europe and the USA? Are we going to have frosts in Brazil between June-August-2021? I believe this to be the main risk and we will only know it in 7 months!
If the market returns to the level of 125/130 cents per pound in Sep-21, we will continue to suggest / monitor the purchase of the 120 x 105 “Put-Spread” selling the “Call” of 135/140 cents per pound-weight, trying to guarantee a minimum price for producers above 650 R $ / bag. Of course, if the market continues to rise, we will adjust the protections to higher levels and sell higher calls as well.
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