Everybody of us knows all the factors that were driving down this market.
The acceleration of bet shorts has been seen multiplying by the halt of decreasing certified stocks, the starting return to a carry market, and the drop in price differentials.
Macros were displayed favorably for bear traders: The hawkish behavior of the Fed resulted in a dollar strengthened, which sent odds for a recession time with the expectation of a decrease in global coffee consumption.
The weaker Brazilian real has not helped the prices either. Lula's reforms in Brazil, point out big fiscal expenditures and non-responsible monetary policies that will tend to devaluate the Real further. If you add all of these to a prospected bigger 2023 Brazilian you may conclude that it was a perfect scenario to go short and then you can explain why the market is down.
However, the situation has been aggravated also by the actions of the Professional traders changing from massive longs to start building regular huge short positions aided by the algos and the prevailing systematic trading pointing down obligating Origins to sell this market down close to the FND. All of those inputs have created the current miserable situation in our coffee market now.
But what is next?
First, we need to say this situation has created an extreme safety and complacency situation for bear traders. All the shorts have been in an extremely comfortable situation
Second, this market has come down too fast and furious and restless.
Third, according to the market efficiency vision, the coffee market would have absorbed all negatives on its current price already.!
Fourth, there is no more pressure on the FND. Origins had to do all the price fixation against December last Friday and now they have plenty of time to fix against March.
Fifth, now the market can focus on the real situation of the market.
Agronomists, field technicians, and coffee growers in Brazil are observing a very low conversion of flowers into berries. The expert points out as an explanation for this a very defoliated situation that occurred in vast crop areas and now they have different views of the Guru's firms that foresee a coffee crop of 70 million against a real chance that will be no more than 60 million bags.
Sixth, there are important holidays coming and an end-of-the-month situation which will be very tempting for funds to make their shorts into profits ( book squaring and profit taking).
The seasonality should favor seeing better prices at the end of the year with rebuilding stocks for the winter by the industry.
Finally, if there will be a Christmas rally for the stock market the situation will come with a loosening of the monetary policy or at least a temporary return of a dovish view by the FED.