Coffee futures dropped 13.75 US cents per pound this week, reaching 346.5 US cents per pound for the most active March contract as of Tuesday. The decline broadly aligned with expectations for the market to fall to 350 cents per pound before finding more significant roaster support.
Index rebalancing proves uneventful
The index rebalancing period concluded with Index buying a net of 1,050 lots, representing a virtual nonevent for the market.
Central American differentials drop drastically
Negative macroeconomic forces are converging on the coffee market at the same time as Central American origins find themselves at peak harvest and without significant demand. Coffee differentials for some origins like Honduras have dropped drastically.
The declining differentials indicate an increasing possibility of more coffee arriving to be graded as exchange stocks. Recovery of exchange stocks is critical because it will showcase to non-physical coffee participants that Arabica coffee is in a surplus and doesn’t warrant the current extreme backwardation priced into the market.
Once backwardation eases, origin will find it easier to sell coffee farther in the future, promoting more market liquidity overall.
Market tests critical support level
The market will be testing a critical support level around 340 US cents per pound this week. If broken, futures can fall to 325 US cents per pound. If the support level holds, prices could return to 350 US cents per pound.
For the full market analysis, visit: https://app.vespertool.com/market-analysis/2612