Sucafina expected coffee futures to hold a range last week while the market waited for news on Brazilian coffee arriving in Europe. Instead the December arabica contract rallied 25.1 cents Monday to Monday. No significant grades came to the exchange, the market took that as a bullish signal, and momentum triggers extended the move once the $3 a pound barrier broke on Friday.
The weekend brought Brazil’s election, with Flávio Bolsonaro given around a 75% chance by betting markets. Brazilian farmers read that as a signal for better economic conditions ahead, starting with the exchange rate, and they still hold roughly half of the current crop. Sucafina sees the decision cutting both ways. A stronger real makes coffee sold in dollars worth less at the same New York price, which argues for holding back. But a 13.75% domestic interest rate makes turning coffee into reais in the bank far more attractive than it was, and coffee sold this year carries a tax bill that coffee kept does not.
The longer-term weight on the market has not gone away. A 10 million bag arabica surplus for the year translates into 35,274 lots of additional futures hedges arriving as soon as that coffee is sold. Sucafina’s view is that the new buying runs out of steam before long.
Read the full coffee market analysis here.
