Coffee Farmers Hoping For Better Prices On Possible PEPRO Deal

The main global exchanges closed last week in positive territory, with the exception of the Chinese index that fell sharply last Monday and was not able to recover.

Statements from some FED members that the QE will not be changed in case the economy performance is not sustained may have been the reason investors calmed down, who by the way had already made a good part of their book adjustments envisioning a less liquid scenario.

The end of the first half of the year has the indexes of the American, Swiss and Japanese exchanges as the main winners, and the main commodities indexes as the losers. The biggest drops were with gold -35.54 %, silver -26.98 %, nickel -19.64 %, wheat -16.65 % and coffee -16.65 %. In the last 5 days the Arabica closed higher US$ 1.72 per bag and the Robusta US$ 0.96 per beg.

NY gave the impression that it would reach new lows but recovered quickly the day after, a behavior no different from what was seen in London.

There was greater coffee buying interest in the physical, even though this was not translated to sizable deals due to the difference of the price levels that producers have in mind. News in Vietnam about a supposed plan to store between 3 to 5 million bags and in Brazil, whose Agriculture minister announced that he will ask the government for 390 million reals for the PEPRO, both made coffee farmers postpone their decision to sell coffee, hoping for better prices.

Rains in Brazil have suspended the harvest in some regions and should damage the quality for part of the coffee that was being prepared – nothing to be alarmed at the moment.

The drought in Uganda seems to have prevented the planting of 20 million coffee seeds, as it had been planned, allowing only 9 million to be planted.

With the USDA confirming the 4th consecutive year of a global surplus, which will probably be followed by another one with increase of inventories for the next cycle, the scenario continues to be limited for a considerable recovery of prices – even though some analysts bet in an 20 % increase up to the end of 2013.

The large short position of the funds and a slight recovery of the Brazilian currency have helped the C to find support so as to be above the US$ 110 cents until we get closer to the new crop in Central America, Colombia and Vietnam.

The Robusta differentials have firmed in this off –season peak and should not be weaker up until after the end of the Ramadan, or even up to the end of August/beginning of September. After this, I think the LIFFE contract should suffer new selling waves, which then could threaten the Arabica again.

In case it is approved, the PEPRO should not have a lasting effect on the exchange prices but without a doubt it will be welcome to diminish the losses of those who have high production costs in Brazil.

This will be a short week, since Thursday we will have the Independence day holiday in the USA.