The market has been trading several items with its big drop that started last Friday.
1. Rain maker that is hitting this week, approaching right now.
2. Huge rains from late September have resulted in abundant flowering
3. Very bearish fundamentals/supply
4. Latest long range(after week 2 forecast) is pretty wet/bearish at the moment.
After these rains end, the pattern looks dry for at least a week. This is not that unusual this early in the rainy season. If this dry period expands beyond a week or we see signs of a blocking upper level ridge, this would be a good buying set up............it's not there at the moment.
This is where they grow coffee in Brazil:
The higher the number, the greater the production.
This link has more good stuff including a map that I can't copy here:
October 7, 2019 update: Coffee price charts. This is the December contract. Note the potential double bottom(May lows-August lows) and big spike higher in price. Then we had a big rain event which has resulted in a nice, first flowering(very early in the rainy season/bearish). This week, we have another rain event but this one looks pretty wimpy.
It should be dry after this event for at least a week, then??? Latest long range maps bring good rains back during late Oct and beyond.......bearish for the moment.
Addition, October 20, 2019: The charts below are inconsistent across varying time frames. Don't go exactly by what they show.
1 Year Below
Drought in Brazil in 2014 caused a spike
Drought in Brazil and bad weather globally in 2010 caused the 2011 spike
Coffee prices dipped below 50c in late 2001 and the first half of 2002 before the time frame above.
Markets don't always follow seasonality but this is just a historical tendency. \
Coffee often drops lower with heavy supply pressure during harvest June-August.
Shortly after that is often a good time frame for a bottom, followed by price strength. The seasonal/historical tendency below looks pretty powerful based on the average of a 20 year time frame, ending in 2017.
However, there were a few years in that time frame, when the price went lower and defied the average for at least part of that time. Regardless, the seasonality of the pattern and low prices have me looking for a buying set up on weather.
October is the start of the rainy season in Minas Gerais, #1 producing state in Brazil for coffee production. Should those rains sputter with a dry pattern and/or blocking high pressure ridge, it would turn the weather bullish and inspire some buying because of adversity to the coffee plants.
We had a very early rainy season event late in September that has already triggered a decent first flowering in coffee land...............and drop in prices the last 2 trading sessions, along with another rain event coming up this week.
It must turn dry after this event and stay dry for the rest of October for this to be a high confidence weather trade. Late October forecasts, beyond 2 weeks are wet here on Oct. 7th which is bearish for the moment.
It almost never rains in coffee land in June/July/August and widespread rains in September are a bit unusual. This is completely normal weather for their "monsoon".
The rainy season starts in October, which triggers the initial flowering(s). Only if no rains are seen in outlooks that go into a good part of October would the dry weather be seen as bullish. There is a 2nd rain for the rainy season already coming up this week and its only early October.
It does look dry after that for at least a week, then maybe wet weather the last week of Oct into early Nov but that is a low skill forecast period.
The months when they get blockbuster rains are Nov/Dec/Jan. Rains taper off after that, then they have the dry season again May-September.
This is the mean monthly precipitation, including rain, snow, hail etc. Show in Inches »
|Founded||April 29, 1964|
|• Mayor||Nardyello Rocha (MDB)|
|• Total||165.509 km2 (63.903 sq mi)|
|• Density||1.440/km2 (3.73/sq mi)|
|HDI (2000)||0,806 – high|
Latest 2 week forecast from the US operational model.
Monitoring rain/satellite pictures:
Rain amounts 24 hours:
Rain amounts for longer periods globally:
The International Coffee Organization (ICO) estimates world coffee production in coffee year 2018/19 to be 3.7 per cent higher than in the previous year at 168.87 million 60-kilogram bags. However, at 164.82 million bags, world consumption for coffee year 2018/19 is estimated to have only grown 2.1 per cent.
This means coffee supply has exceeded demand by 4.05 million bags.
Output rose in all regions except for Mexico and Central America, where the harvest declined by 0.8 per cent to 21.47 million bags. Nearly half of the world’s coffee was produced in South America, where production is estimated 4.8 per cent higher at 80.95 million bags in coffee year 2018/19. Production grew by 4.6 per cent in Asia and Oceania to 48.46 million bags, while output in Africa rose by 1.9 per cent to 17.99 million bags.
Output of Arabica has increased 1.8 per cent to 102.68 million bags and Robusta grew 6.7 per cent to 66.04 million bags. The larger supply in coffee year 2018/19 is reflected in increased shipments in the first eleven months of the coffee year, during which global exports increased by 9.2 per cent to 120.28 million bags, surpassing the total volume shipped in 2017/18.
This ICO says this surplus is a major factor in the low prices this season, with the ICO composite indicator only averaging 100.47 US cents per pound in coffee year 2018/19.
The ICO composite indicator fell to 97.74 US cents per pound in September 2019, increasing 1.7 per cent from August. It reached its lowest point of 94.01 US cents per pound in the month on 5 September. It peaked at 100.29 US cents per pound on 16 September, which is the only day that the indicator exceeded 100 US cents per pound in the month.
Prices for the Arabica group indicators rose in September 2019, while the Robusta indicator fell to its lowest monthly average since April 2010, decreasing to 70.64 US cents per pound in September 2019.
“On climate change, it is prescient that this announcement coincides with UN Climate Week because this worries me greatly — what’s around the corner?,” Verma stated. “We are seeing how more extreme weather patterns can alter the flowering and fruiting cycles in producing countries as well an increase in pests and diseases, such as [leaf] rust… Without the means to invest in more resilient hybrids and other adaptation methods for the future, farmers cannot be blamed if they give up.”
metmike: Just one huge problem with that. The reason that coffee prices are so cheap is because the complete opposite of the paragraph above is happening as the climate optimum for life on this greening planet continues. As a result, production is exceeding demand.
The data on coffee and other crops with regards to yields and production is the data.......not an opinion and not words and not politics.
If they want higher prices from the effects of weather/climate we can:
1. Go back to the old climate of 100 years ago that produced much more adversity for life and crops.
2. Drop beneficial CO2 levels
3. Have global cooling instead of slight beneficial warming.
"Robusta is near the lowest since 2010 amid a coffee glut
Robusta is unlikely to stay at these prices for long: Rabobank "
"The coffee market is looking increasingly bleak."
metmike: I'm actually looking for a potential buying set up at this support level...........but only if the forecasts stay dry for the 2nd half of October, into the start of November.
Latest models bring another potential rain event from the south in less than 2 weeks.
The weather has turned pretty bearish again for coffee as rain chances are going way up in week 2 for key, #1 producing Brazilian state Minas Gerais.
We've taken rain out of the forecast for the key #1 coffee producing state of Minas Gerais, Brazil.
This is giving us some buying on Monday morning.
Late in week 2 we do have a potential blocking upper level ridge on the European and Canadian models.
Models look a bit wetter today.
Potential nice rain event coming up early next week.
No blocking ridge after that.
The European model 768 hour/monthly maps late yesterday showed tons of rain coming.
If you scroll up to the US model above for the next 2 weeks, you can see that we have some nice rains on the way for Minas Gerais today.
This is bearish, will trigger additional flowering and get the new crop off to wonderful start..........if it happens that way.
However, 92.20 KCZ area is mega support, which was todays low and last weeks low.
If we take that out, charts look bad. Seasonals during the next 2 months turn upward but world demand/supply fundamentals are in the toilet thanks to such great growing conditions and crop size from favorable weather and CO2 levels.
The US models have a good rain coming up next week but the European model has turned bullish, with much less rain, then a big upper level ridge at the end of the month.
Arabica and Robusta COT Report
Posted by Tango on October 19, 2019, 6:50 am
BIG rains coming up this week............you can monitor them using the links above.
Hard to get overly bullish(on weather) with this much rain the next 5 days.
Coffee doesn't have to trade weather, since:
1. We had 2 great, early rain events that have stimulated good flowering and a nice start to the upcoming 2019/20. If there was a drought or no rains yet, this rain would be HUGE.
2. The models don't show anything extreme.
3. Seasonals-turn positive, Technicals-potential bottom at support, Fundamentals-very bearish may be more important.
Coffee weather-turning dry for a week after these current rains end....which have been disappointing so far.
Coffee has been a disgusting attempt on my part to pick a bottom.
Today is probably a peak to sell
Sorry you missed the bottom. Tough market to buy with so many negatives.
Coffee had a big bounce today, probably on weather.
Rains from this last event were disappointing in some places. A modest rain in the north yesterday apparently caused KC to gap lower on the open this morning.
However, this was immediately filled and coffee had a great deal of buying that really kicked in around 7am.
This technical formation can be referred to as a small "gap and crap" where the open is either higher or lower than the previous days entire range.......because of a sudden, one sided surge in buy or(in this case sell) orders, not offset by enough on the other side of the orders. There was almost no volume here so it was not a big deal.
Then, the offsetting orders come with enough gusto to take the trading back into the previous days range, filling that gap. This often signals an exhaustion in those initial orders if there is no follow thru.
Follow thru that keeps the gap open and puts some distance between the current price and the earlier gap is a break away gap that has strong continuation potential.
A gap and crap(gap that is quickly filled) is often a strong signal for the market to move in the opposite direction......which is exactly what happened during todays trading session.
Why was weather bullish today?
1. This weeks rains are over. Rains in the forecast are usually quite bearish for prices, especially within a few days of them falling. This is also true for grains and other crops that trade. During key developmental phases of crops, buyers, especially speculators will be more prone to step aside with an expectation of rains causing crop estimates/supply to grow and lower prices...........and an expectation of them being able to buy at cheaper levels from then, until it appears the market has entirely dialed in all the upcoming rains...........which, sometimes is not until after the market opens after a big rain event that happened since it closed the previous day.
These falling and still yet to fall rains were bearish the last couple of days from a system tracking across coffee-land, from south to north the last few days.
To see how much rain fell, go to this link and hit 3 days, then 5 days. You will see that southern MG did not get much:
2. Most importantly, the next rain event is not going to be for awhile with some models keeping it mostly dry thru 2 weeks and the latest Euro and Canadian models building an impressive upper level ridge into coffee country at the end of 2 weeks. This is a low confidence forecast as rains in this area, often end up growing in the forecast in the week 2 models.
If we don't increase rain potential early next week, todays strong performance could be the precursor to additional strength in KC next week. Added with positive seasonals that kick in at this time of year, we would have wx, +positive short term technical response on the charts to end this week as 3 items which could fuel additional strength. Funds have huge shorts in the market which can always cause a flurry of short covering(buying) on rallys.
Against those potential positives, we have a very bearish fundamental outlook and the crop off to a great start.........but those are known and the market can take its cue on NEW/FRESH items vs STALE/OLD items that pressured prices to new lows earlier this month.
There have been a couple of nice early season rains that have triggered widespread flowering and the 2020 new crop should have gotten off to a good start in Minas Gerais
However, that is a big part of why we set contract lows earlier this month. Added to all the bearish fundamentals and technical picture, it spelled the lowest price in a very long time, just above 92c.
However, today we closed above 99c and near the highs for the week.
This will get tjc excited. This sets the potential stage for a gap higher on Monday morning's open.
However, weather is only one factor here, which is potentially bullish at the moment.
Thanks for the insight Mike. I’m guessing that some of the same weather conditions is also affecting sugar, but I could be wrong.
Glad you brought this up Mark. I have never traded sugar and was pretty ignorant about the specific locations where its grown and production amounts.
Time for all of us to get an education!
I'll try to have more later:
Brazil alone accounts for almost 52% of the world's sugar market.
The weather is not looking that bullish for coffee here early in the week.
KC wx continues to get increasingly bearish............rains going up in the week 2 forecasts.
Coffee weather is bearish.
Massive rains coming, starting late this week and continuing week 2.
Seasonals are strongly positive here, even in most years with favorable weather, so bearish weather does not mean we will go lower. It just means that I won't be buying because of the influence of weather.