Expert Insights -- On Current Market Volatility by Andre Santos, Ally Coffee - Ally Coffee Merchants

Expert Insights -- On Current Market Volatility by Andre Santos, Ally Coffee

Jul 29, 2014


It seems that for the past 5 months all coffee market followers heard about was the drought in Brazil and how it impacted the coffee output. Brazilian exporting companies and organizations have been releasing their crop estimates ranging from 39.5 to 55 million bags, which caused speculative funds and players to enter the futures market. The result was high volatility and prices oscillation from $1.15 to $2.15 per pound, which represents $1 variance or about $132 per 60 kg bag. Brazil’s National Council has estimated that 35% to 40% of their nation’s harvest has already been completed this season; this is a faster than the normal pace due to premature maturation. Nevertheless, it is still early to report the final crop output. On the fields, reports show that the most affected area is South of Minas, an area which Conab reports yearly average of 10 million bags. On the other hand, Expocaccer located in the Cerrado Mineiro and Cocapec in the Mogiana Paulista, Sao Paulo, reported favorable outcome. Although the main concern is the supply of the commodity grade coffee, the whole supply chain absorbs the effects of the Future’s market price oscillation. On the same note, we are still experiencing a shortage of Centrals as a result of the Roya fungus in Costa Rica, Guatemala, Honduras, El Salvador and Nicaragua which increased their differentials price to over 100%. Taking advantage of the situation, Colombia has increased their exports to the US as data shown in the Graph.


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=> 'Expert Insights -- On Current Market Volatility by Andre Santos, Ally Coffee'
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=> 'It seems that for the past 5 months all coffee market followers heard about was the drought in Brazil and how it impacted the coffee output.  Brazilian exporting companies and organizations have been releasing their crop estimates ranging from 39.5 to 55 million bags, which caused speculative funds and players to enter the futures market.  The result was high volatility and prices oscillation from $1.15 to $2.15 per pound, which represents $1 variance or about $132 per 60 kg bag. 
Brazil’s National Council has estimated that 35% to 40% of their nation’s harvest has already been completed this season; this is a faster than the normal pace due to premature maturation. Nevertheless, it is still early to report the final crop output.  On the fields, reports show that the most affected area is South of Minas, an area which Conab reports yearly average of 10 million bags.  On the other hand, Expocaccer located in the Cerrado Mineiro and Cocapec in the Mogiana Paulista, Sao Paulo, reported favorable outcome.
Although the main concern is the supply of the commodity grade coffee, the whole supply chain absorbs the effects of the Future’s market price oscillation.   
On the same note, we are still experiencing a shortage of Centrals as a result of the Roya fungus in Costa Rica, Guatemala, Honduras, El Salvador and Nicaragua which increased their differentials price to over 100%. Taking advantage of the situation, Colombia has increased their exports to the US as data shown in the Graph.
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