Market Watch

Market Watch: 10/9/2018 by Education RoyalNY

Technical Analysis of the New York Futures Market

In response to the Sulawesi Earthquake and Tsunami Crisis we have started a GoFundMe campaign to support the work of Doctors Without Borders in the region. For more information, please visit: https://www.gofundme.com/emergency-aid-for-sulawesi


Longer-term, Monthly, and Weekly charts

This quarterly report may likely be one of significance.  Not only can one see on the above chart that the market has held, with some “forgiveness”, the $1.00 level but now it seems that a reversal pattern for the month of September 2018 has led to a recognizable recovery.

The weekly chart really is not much different from the monthly chart.  It has shown some deceleration of price momentum, is approaching a challenge of longer term downtrend lines and also had a reversal pattern on the chart.

Shorter Term Daily Chart

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On the daily chart, one must respect short term factors.  We must take into consideration the market has seen just one week of short covering (not so significant LONG TERM) and has approached the 50% retracement of the May 2, 2018 high to the September 18th low ($1.1330) and has tested the 100 DMA at $1.1214.  This “leg up” may now be due for a correction, but unless current market factors (see below) change, any healthy retracement of this rally would likely be corrective in nature.

Consider these few factors;

  • Commitment of Traders had shown the funds and specs short position at record levels of short positions (roughly 105,000 lots).  This amount of short position amounts to roughly 26 million bags of coffee for New York “C” alone.  When combined with London, most had expected the number of shorts to have exceeded 35 million bags of coffee.  Taking into consideration that position against any surplus in coffee supply, a conclusion could be drawn that the sheer size of such a speculative position would not have been sustainable.

  • Additionally, for some origins (Brazil, robusta, others) we are above cost of production.  However, for some source countries, particularly the better mild coffee producers, we were and still remain below COP.  Low prices may induce farmer neglect and poor crop care and this will affect differentials and the availability of better quality coffees in the future.

  • Add to this, how some coffee producer advocacy groups are speaking of governmental support programs and even minimum pricing and one must strongly consider extending “buy-side” price protection further out the calendar.  (The Brazil Farmers Confederation have asked the government for funding in hopes to avoid selling the new crop harvest at sub $1.00 prices)

Macroeconomic Factors

The support in the Brazilian BR Real has elevated prices for the past week. Much of this move is Real related, not so much US Dollar related.  Traders will factor in the results of the Brazilian Presidential election this past weekend, where candidate Bolsonaro is construed as “bullish: BR Real”.  So with the runoff election due October 28th, we have nearly three weeks of volatility to add to the possibility of some corrections of our initial rally off the lows to possibly feeding more short coverage too.

Source Country Commentary

Brazil  

Differentials have remained moderately firm over the past quarter especially for nearby shipments and coffees landed and offered spot.  A softer futures market along with port congestion and limited availabilityof space on vessels, contributed to firm short term differentials regardless of the large Brazilian crop.  With the recent uptick in both the New York “C” market and the Brazilian BR Real, expect diffs to plateau or soften slightly as farmers interest in selling increases.  

Central America 

Honduras

Compared to last year differentials have only gone up slightly relative to the decline in the futures market.  Producers/exporters have been willing sellers of new crop coffee because once again Honduras will be the largest producer in Central America.  

Costa Rica 

West Valley is expected to have a lower yield this year due to a combination of un-seasonal rains after flowering, pests and strong winds.  These are all major contributors for the expected reduction. The Tarrazu region is not impacted as much and may not see similar losses, although a slight decrease is expected due to a big harvest last year and what they are believing will be an off cycle this year on yield. Offers from origin have changed a little from differential pricing to asking for fixed prices due to recent lows in the market and fear of the market staying near these levels into the shipping season.

Guatemala 

Looking for a similar harvest for this year… approximately 3.5 million 60 kilo bags.  There are two underlying concerns of the farmer for the 2018/2019 harvest; 1) Will roya return again and 2) will prices improve for them?  For many this will determine if they abandon their farms or continue in the coffee business.

Africa 

Ethiopia

Has not started picking.  Please know that weather for the next 6 to 8 weeks will be a big factor for quality.

Kenya

The fly crop has just ended and was small, however it is and too early to tell what the main crop will result.

Far East and Indonesia  

Sumatra has been the strong barometer for Indonesian pricing over the last year as record high internal prices have prevailed. With the new crop upon us, the market is looking for some relief, however initial pricing remains firm as the flow of new crop offers has been sparse. Sulawesi, Bali Blue Moon and Kintamani are making their way to our warehouses, so get your name on some as the window of deliveries is small. Additionally, look for some price ease with recent new crop Timor arrivals.  

At this point in most producing countries crop cycle and with recent lows in the futures markets, our focus here at Royal is aligning ourselves with good supplier partners who will do their best to maintain quality given the change in prices year on year.

Demand

Roaster interest to extend fixations has been constant as market prices eroded through the summer.  Buyers are now pricing through the 2019 calendar.  

This outline is intended to promote thought and an exchange of ideas.  If you have an interest to share your point of view, please do not hesitate to call your sales rep here at Royal, or you could call me.

Good luck,

                Fred Schoenhut

                Royal Coffee New York, Inc.

                (908) 756-6400

Market Watch : June 29th, 2018 by Fred Schoenhut

Second Month Continutation Charts

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Technical Analysis of the New York Futures Market:

As I would normally do, I review my comments from our previous market letter to see what points of emphasis might need to be made, to effort an avoidance of repetitiveness and to see if our comments might have proved valuable.

Seeing as though we have experienced confined market ranges that continue the existing trend since our last report, (up five or six cents and then back to unchanged and down for five or six cents) one could certainly guess that comments too may be little changed over the past 3 months.  Well, that is in fact the case now in June of 2018.

Once again, we will take a look at two time frames for the purposes of studying chart activity.  Weekly which gives us a long term analysis and daily, which will enable us to analyze the shorter time frames.

The weekly chart shows a steep and relatively unchallenged down trend line that dates back to late 2014.  Currently that resistance is at the $1.4000 area.  A more recent downtrend line which began in late 2016 was nearly challenged 6 weeks ago, but remains today at above $1.2500.  One point of note is that a secondary line of the previously mentioned 2016 line (mid-2017 to current) had been broken in the recent April to June 2018 rally from the $1.15 area to the $1.27 area.  This gives one reason to think the downward momentum is waning.

The daily chart of course shows more detail of the “secondary” price action from the weekly chart.  You can see where the mid-2017 to current trend line was broken and how we had a 12 cent rally off those lows, only to fail to a point where we now have a new low for the move and a life of contract low.  TOTAL Open Interest is at an all-time high record, which too may signal satiated positions.

As we approach the 2016 lows of $1.1335 and potentially the 2013 lows of $1.0415, I maintain that if the roaster is content with profit margins at these levels, extending coverage for another “tranche” of their coffee needs would be a sensible suggestion.

Supply:

Brazilian diffs continue to be flat.  Softening is expected for Q4 2018 differentials as new crop short covering is satisfied and farmers will be expected sellers into strength to keep up with 18/19 sales.  Brazil is in the market almost daily, but tend NOT to follow the price down and prefer to sell bounces.  Colombian farmers are still limited sellers and despite lower prices, differentials are little changed.  

I read an article today that one industry source believes there will be 6.6 Million bags of green coffee surplus for the current year.  Considering that global consumption is roughly 150 million bags per year, the surplus is pegged at roughly two weeks’ worth of roastings.  Something to think about.

Demand:

Roaster interest to extend fixations is apparent, but the beginning of summer, the end of school and the prime vacation time of year do present a less than vibrant market for the buy side.  Combine that with the lack of any hard push for prices to escalate supply and demand-wise, has many buyers nibbling or simply taking to the sidelines for now.

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The certified stock number has remained steady being within 50,000 bags of 2.0 million for the past three months.

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Once again, this outline is intended to promote thought and an exchange of ideas.  If you have an interest to share your point of view, please do not hesitate to call me.

Good luck,

                Fred Schoenhut

                Royal Coffee New York, Inc.

                (908) 756-6400