KCNY and DOLLAR
In a week of oscillations between bullish fundamentals and bearish macroeconomic factors, the December/21 C contract closed the week at 181,50 USC/lb, a negative weekly variation of 425 points.
- The market continued to be sustained by the concern with world supply, following the adverse weather in Brazil and other producing countries. The probability of a La Niña occurrence at the end of the second semester increased to 70%, a worrying phenomenon for the crops in Asia and Central America;
- The damage caused by the July frosts in Brazilian coffee plantations is still being evaluated and different estimates have been released, but there is no doubt about the great impact on the production of 2022;
- On the bearish side, the advance of the Delta variant concerns global openings and demand, besides the increase in GCA stocks of US green coffee, which rose by 300,000 bags to 6.017 million bags at the end of July, the highest volume since October since last year;
- There was also a strong devaluation of the Brazilian real and an increase in the US dollar, which rose to R$5.47, putting pressure on commodity prices, including coffee;
- In a more risk-averse market, the confidence crisis is a trigger for capital outflow from Brazil. The skyrocketing inflation in recent months, “precatórios” and the creation of Bolsa Brasil put Brazil’s spending cap and public debt at risk.
December/21: Min: 178.10 | Max: 189.25 | Last: 181,50 USC/lb
BRL/USD: Min: 5.2292| Max: 5.4741 | Last: 5.4071
*Data as of the completion of this report
WEATHER
- There was little rain at the beginning of the week in the Zona da Mata and some areas in southern Minas Gerais;
- A great mass of dry air predominates over Brazil, with an alert of low humidity, no rain and strong sun;
- According to Clima Tempo, temperatures of 35°C to 38°C are expected in areas of the Southeast, with the absence of the polar air mass and more natural sunshine in August;
- Some weather models have indicated a return of rains at the end of next week and beginning of September in the main Arabica regions, but the volumes still need to be confirmed with the weather. In this period, most of the crops in Brazil will have already finished or will head towards the end of the 2021/2022 crop;
- Good rainfall volumes in September and October are primordial for flowering and crop conditions for the 2022/2023 harvest.
DOMESTIC MARKET and FOB
In another week of low liquidity, business was not very busy in the domestic and FOB markets;
- There is a lot of demand for Rio Minas coffee 17/18 and 15/16, however, business is not moving forward, either due to the very scarce supply or the big gap between the prices of domestic market supply and importers demand;
- The sellers in the domestic market are extremely firm in their prices, putting a brake on the opportunities for back to back deals;
- Arabica bica duro type 6/7 around R$1000-R$1070, varying between regions;
- There are few active coffee sellers in the domestic market, with producers concentrating on future deliveries and evaluating climate impacts on crops;
- The harvest in Brazil is nearing its end, with about 95% already harvested in the Zona da Mata and 80-85% in the South of Minas Gerais and the Cerrado.
LOGISTICS
The challenges in Brazil continue to reflect the global situation of logistical chaos, which already affects all markets.
- We have found no food-grade containers with MSC in recent weeks;
- The lack of containers is also critical with Maersk and Hapag Lloyd to fulfill all shipments contracted with these shipowners;
- Other shipowners also have a low inventory of equipments;
- The many cargo roll-overs, great difficulty in finding space on vessels, delays in releasing cargoes and pre-stacking continue to be frequent, generating delays in coffee shipments;
- Some analysts point out that the situation will persist and there is a risk of worsening in the coming months, until 2022, when global flows should begin to normalize;
- New bookings:
- Europe: already closed for new routes on September/21 ships. Some destinations are already closed for new bookings;
- USA: we managed this week some space reservations for late September, October and even in November/21. Today space in September/21 is no longer possible, only from October onwards;
- Japan: availability only for mid/late September/21.
COVID-19 IN BRAZIL
Brazil is going through a moment of relief in hospitals, with the advance of vaccination and the consequent drop in the incidence of cases, hospitalizations and mortality rate in the last eight consecutive weeks. More than 25% of the Brazilian population has taken the second or single dose of Covid vaccines.
People who received the first dose: +120 million (56.78% of the population)
Fully vaccinated people: +53 mi (25.24% of the population)
Cases: + 20.49 million
Deaths: 572,733 thousand
Let’s keep believing and investing in the coffee culture!
Stay well,
Atlantica Coffee Team