1/26/21
NY KC TECHNICAL UPDATE

• Physical business remains lackluster, but “diffs” are firm

• Global coffee production has been in excess of consumption for years
• World coffee stocks are ample to meet current needs
• Exchange stocks continue to rise
ICE Arabica 5.5 month high & Robusta 9.5-month high
• Supply from the main producers’ latest crops continue to flow
• Following record production, Brazilian exports continue at record levels
Producer sales may be starting to slow due to upcoming crop concerns
• Nam’s historically aggressive year-end selling lessened due to multi-crop income
• The just harvested (October) Nam crop could be 10-15% below expectations

• After a relentless long term decline, Brazilian REAL attempting to bottom

• The conservative CONAB projects a 32-39% decline in the Brazilian 21/22 Arabica crop
• The first CONAB estimate is more optimistic than others & generally 10% below the outcome
• More accurate estimates will be forthcoming in February & March
• New CONAB estimate coming in May
• Higher prices unlikely to be sustained if Brazil’s 21/22 Arabica crop decline is less than 30%

• Mutant strains raise additional concerns about the impact of C-19 on consumption
• Excluding China, economic forecasts unlikely to match expectations
• The Impact of C-19 on production & consumption could be offsetting
• Consumption may not have grown, but appears better than expected
• If recovery-based demand accelerates, prices could spike on a meaningful Arabica shortfall


FUTURES

• Long term bear market in coffee bottomed in mid-2019 & broke out to the upside on heavy volume
• The post breakout has traded sideways to higher in a range from $90.0 to 135.0
• The upward ascending (line chart) formation & the descending (bar chart) formation are bullish & have made three attempts to thrust higher
• Futures declined almost ten cents from the recent $132.0 high after the CONAB estimate
• The weekly line chart support is at the $1.00 level, well below Friday’s $124.05 close
• 90 minute & daily trend line support are both at the $120.0 level
• Open gaps remain at $121.0 on the 90 minute bar chart, $110.0 on the daily chart & $210.0 on the weekly
• A 50% retracement of the November spurt from $105.0 to $132.0 is at $119.0 on the bar chart & $116.0 on the line chart
• The current correction was accurately forecast by the negative divergence on the 90 minute, daily & weekly charts
• The 90 minute chart is ready to rally, but the daily & weekly formations need more work, particularly the weekly
• Failing after three attempts to continue higher is a caution sign
• Historically accurate charting tools continue to point to the $140.0 - $145.0 level
• Long term charts indicate the REAL may be bottoming
• The Brazilian REAL remains a component of the NY KC price recovery, but ended the week under pressure
• COT less than friendly
• Noncommercial specs increased their net long NY position to 23,646 on 1/19 report, up 48%
• Shorter term managed money increased their net long NY position to 24,483, up 52%
• London’s speculative managed money increased their net short position to 9,836 lots, up 37%
The short Robusta position could backfire on managed money
• NY KC seems to be losing upside momentum, but consolidating ten cents off the recent high
• As confirmed by the 90 minute volume spike the four month high is probably a temporary top
• Consolidation & gap filling at $121 and $110 could fuel a bigger rally
• TRADE INITIATION SHOULD REMAIN SIGNALS BASED.
• Risk/opportunity of overnight shocks & spillover
• Pullbacks to $120, $110 & $100 all possible
• Futures don’t seem ready for a sizable move in either direction at this time

IMPACT OF CHANGING LONG-TERM WEATHER PATTERNS ON KEY COFFEE PRODUCERS UNKNOWN
Simultaneously changing patterns in Nam, Brazil, Honduras & Colombia
Given today's dynamics, establishing long coffee futures position at cheap prices could be a unique opportunity
Price mitigates risk & risk must be managed
Bull market could be a multi-year scenario, an unrecognized dynamic
Inelastic demand monster unrecognized
Leverage, the unknown & misinterpretation exacerbate risk

WE ARE TRADING NY KC, THE BRAZILIAN REAL, MACRO CONDITIONS & SHOCKS