At a glance
Coffee traders are used to volatility, but even judging by our high standards the New York rally of 33 cts in just 4 days was spectacular. Speculative buying was the main driver of this ascension, as more stories come out of Brazil about some premature flowerings that could compromise the 2023/24 crop and a potentially lower 2022 harvest hurt by drought and frosts last year.
Most public estimations for the Brazil 2022/23 crop have been on the high side and – now when the crop is harvested – converging towards 40 million bags for Arabica. The market shrugged off recent gradings (read: re-gradings) as the consensus is it will be limited to <300k bags assuming the current pass-rate holds, which is not enough to turn around the ongoing decline.
With NY now trading ~240 cts again, the million-dollar question is, has the current concerns about Brazil been priced in? Overall, the Arabica balance-sheet looks tight in the coming months and inverted New York Z/H spread (and London F/H) suggests supply tightness would only peak around Q1/2023. Whatever is the answer, it is nice for balance-sheet traders to witness Fundamentals taking front-seat one more time and Macro now moved to the backseat, even if only temporarily so…