Wall Street Watchman

Rain in South East Brazil

Finally rain in the South East regions of Brazil.




Now the question is: how much rain? Will it be enough for an healthy coffee flowering season?
The December Arabica Coffe futures contract in NY was hit by a wall of sell stops with speculators reducing their huge position (42K net contracts long as of October 9): I think that during this week sell of speculators could have reduced by at least 10K contracts their net long holdings, that means the Coffee market could now be less vulnerable (after all it lost 10% in 3 days) but I seriously doubt it can climb back to last week highs: speculators are still too long on an historical basis, I expect coffee to stabilise around current levels (i.e. 1.25) for the next few days waiting for a clearer picture on the status of the next Brazilian crop after these days' rain.

Coffe market update, Oct-16

Last Friday ICE December coffee futures tested again the 140.0 level and finished on a strong note on Brazil dryness worries and lack of Brazilian producers selling pressure due to a Brazil national holyday. Also, Friday evening latest COT report suggested that spec long position are getting close to an all time high. Brazil held one million bags of beans in official stocks as of September, the
lowest on record, the agriculture ministry said Wednesday (Brazilian producers seem to take advantage of higher prices to export as much as they can), in the meantime ICE certificated coffee stocks stands at an healthy 4.513 million bags level (suggesting US roasters are waiting for lower price to buy). Monday morning ICE December coffee futures are down sharply at -5%: it seems that some rain in San Paulo during the w-e forced some speculator to sell: in an extremely long spec market stops can be hit resulting in sharp sell off like this morning.

Coffee Market update for Oct 11

After Tuesday dip to 1,33 today December ICE Arabica coffee futures rebounded up to 1,39 in the opening session and is hovering around 1,385 at mid session up 3.5% from yesterday. Coffee traders are still closely monitoring weather for Brazil's October blooming: Sao Paulo state could get light rain of up to 3 millimeters this weekend, Northern Parana 6 millimeters this weekend with more on Monday and Tuesday. By Oct. 19 should be rainy in northern Parana, Sao Paulo and in south Minas Gerais. Brazilian trees in their first three years of production are under stress from current dryness, while adult trees more than four years old -which make up the majority – may be more resilient, especially those planted above 900 meters. Traders report that dry weather may shaved as much as 10% off forecasts for the expected giant Brazilian next crop of 55 million bags (with peaks of 20% in some regions): some however say that a 50 million bags level may still be reached in Brazil's new crop unless rainfall does not materialise soon, in which event the crop may suffer additional significant damage. The Brazilian CNC (Conselho Nacional do Café) warns that estimating the potential damage of 2008/2009 crop at this stage is still pure speculation, there will be some reduction but it is still too early to figure out the size. The president of CNC added that an exact assessment of the next crop figures can be done only in January. Tomorrow COT data will shed some light on market participants positioning: I will closely watch the speculator net long position to assess whether the current high coffee prices may be sustained or not: should net long spec positions increase, the market will be more vulnerable to another severe correction at the first rain in Brazil in my opinion.

Coffee market update 10-oct

Arabica coffee futures fall yesterday as speculators took profits and the market run into trailing sell stops ater December failed to reach a target at $1.41 on Monday. Growing uncertainty abou the weather forecast and hence over the size of the next harvest are the key factors determining the market direction. Weather conditions remain dry, while the forecast calls for some light showers over the weekend. Yesterday the market reacted negatively to talks of possible rainfall in Brazil's top growing regions. If persistent rains fails to materialize today's pull back might proove to be shortlived, however one should remember taht the market is still very long and may be vulnerable to any talk of rain in Brazil.

Coffee market action Oct-8

NY Arabica Coffee (December) future touched an intraday high of 139.9 and settle at 138.75.
The market opened sharply higher and got close to the contract high of 141 but closed in the session's mid-range.


San Paulo Arabica Coffee (December) future touched an intraday high of 169.7 getting very close to the contract high of 170 but closed in the session's mid-range around 168.


Traders continue to watch weather forecasts in Brazil coffee-growing regions: the market is long and near to its contract highs and 10 years highs, the next sessions wil likely see increasing volatility: the market could break the next resistances and set new contract highs as well as could be caught by surprise and sell off if rain arrives in Brazil and forces spec longs to reduce their long holdings (Spec long positions are close to historical highs accordingly to the latest COT report released last Friday).
Readers of Value Area Trading Newsletter will receive soon by email a market and strategy update on December Coffee Futures.

Brazil Weather in Key Coffee regions

The lack of rain in the Brazilian coffee regions is worrying Brazilian coffee growers. In South of Minas Gerais, for example, in August never rained. Every day without rain make a tough situation even tougher. Plants situated below 900 metros were unusually flowering in August as consequence of rainy months of June and July and are now badly suffering for the lack of rain. Plants that usually flower in Sept-Oct-November are suffering a significant water deficit. Production potential of 2008/2009 crop is at stake although it is early to assess size of the potential loss. If rains finally arrive, 2008/2009 crop can still be a good harvesting season but it will not turn out to be a record crop season as initially expected. In this situation the market is closely following weather conditions in Brazil and Arabica coffee prices are touching 9 years high levels both in San Paulo and NY.

Monday Oct 8, 2007 bulletin: weak and localised rain areas in North of Paraná and São Paulo State. Significant rain able to cover the coffee water deficit is not expected . In Minas Gerais and Espírito Santo weather is expected to remain dry till Oct 14. Weather forecast are changing day after day and need to be continuously monitored. Forecasting models expect significant rain in the Coffee producing regions from October 18.