Today there are now over 500,000 bags awaiting certification! Ha Ha! Let’s review events :
1) August/September even the most bearish production estimator is forced to admit that the Brazil crop has not fulfilled expectations and is very short compared to historical.
2) Prices have fluctuated for more than 6 months between $2.00 and 2.40
3) the average weekly range is 14 cents indicating a very volatile market within a narrow 40 cent range. When you consider most of the activity was between 210 and 230 basically 2 weeks of price range.
4) the December coffee reflecting declining certificates and a tight supply situation reaches a 10 cent inversion over the march contract.
5) with no chance of delivering Central American coffees or even semi washed Brazilians. Even if semi washed were available it would result in a 18/ cent per pound loss for the deliverer.. Several firms working together or separately underhandidly and contrary to the exchange regulations put together a bunch of cargoes of a blend of semi washed and Brazilian Naturals with the complete understanding they are skirting the delivery requirements which under no condition accepts delivery of Brazilian naturals!
6) there are no secrets in the trade! Participants in commercial trade are quick to understand that the Dec/March spread will break this will have the effect of indicating coffee isn”t so tight and usually the first sign of bearish things to come.Obviously they position themselves accordingly especially those who are involved directly with the shipments. It"s a given with that level of shipments the spread will break and even the market will become vulnerable.
6) prices begin to decline forcing managed money which is trend following to liquidate it”s long positions as coffee breaks out to the downside and move to a shot position..They go from long 35m contracts to short 15m contract selling 50,000 contracts in 4 weeks or 25% of the open interest in what is considered a thin market.
7) all this coincides with the Central American and Vietnamese harvest delivering another blow to coffee producers
While there is no crying in baseball nothing infuriates me more when coffee analysts who charge big dollars that only commercials can pay say coffee is a level playing field for hundreds of thousands of producers in underdeveloped Countries when dealing with a handful of multinationals!
I believe coffee prices at these levels are in direct conflict with the actual situation. If prices remain at these levels indicating that the 160s is a fair price for coffee under the present conditions I promise to return and offer an apology to anyone I may have offended. But obviously not to those who broke the rules to satisfy their own ends.
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