Head of Commodity Strategy, Saxo Bank Group
Summary: Investors in Arabica coffee have long been awaiting an elusive bounce. Prices are currently challenging the 20-day moving average, suggesting that it might be drawing closer.
Following a higher low this week, however, the December contract is currently challenging the 20-day moving average at 99.89 cts/lb, a level it has not closed above for more than three months. A break above this point, confirmed by a close above 100.75 cts/lb, could potentially signal some upside next week.
• “Excellent” flowering registers in Minas Gerais and Sao Paulo, signaling a plentiful crop for next year (this according to a Bloomberg interview with Regis Ricco Alves, director at RR Consultoria Rural in Varginha, Minas Gerais)
• Even trees with abundant output this year show ample flowering, defying the usual easing trend
• Some trees in Cerrado of Minas Gerais face stress from dry conditions, losing ~10% of their flowering potential
• Brazil may produce ~80% of the volume of Arabica coffee collected this year or the full potential, depending on favourable weather
• NOTE: Coffee enters in the lower-yielding half of a biennial cycle
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