#Coffee is a rapidly changing market and while conviction is essential, we need to be prepared to change our view when the facts change.
Below are 7 data points to watch out for in coffee, when these become available, we should be prepared to change our minds.
1) GCA Stocks
These are due out on the 15th, expectations are for a healthy draw down. The draw is expected seasonally and also from the wide annual deficit and logistical problems in shipment. Deviating from this expectation in either direction could move the market, a particularly steep drawdown will instill fear that the #deficit has been undercounted, while a slower draw or (heaven forbid!) a build will indicate that the bullishness has been exaggerated.
Economic data is coming out every week and the #USD market is constantly adjusting to it. This is especially true since the #FederalReserve indicated that they intent to stay nimble and be reactive, speeding up slowing down #tapering depending on what they see in the strength of the economy vs inflation. Last week inflation came in higher than expected and the market has interpreted that as indication that the Fed will have to taper more heavily and raise interest rates sooner.
Consumer Sentiment is out tomorrow and Retail Sales are out next week. Retail Sales would be the data point that will be most influential to the Fed decisions. A strong Retail Sales figure will validate a tight monetary policy (bullish USD/bearish #commodities) while the opposite will be supportive for coffee.
Coming shortly after that will be employment numbers. The Fed is likely to take a weak employment rate into consideration of slowing down tapering, but at this point it is probably late to stop taper.
3) Weather Changes
Colombia, Vietnam and Brazil. I wrote about this earlier, all three coffee origins are experiencing wet #weather currently. That is good news for the crop in #Brazil and bad for the crops in #Colombia and #Vietnam. Any change to this forecast will affect the market accordingly.
4) Cert Stocks
These have quietly continued to draw down. As of this morning we are now down 346k bags in the last 3 months and 264k bags since the start of the coffee year. A major shift in this trend could indicate that we have already reached the period of peak drawdown, or simply a shift in delivery economics.
5) Calendar Spreads
Calendar Spreads are strong in both Arabica and Robusta. They are heavily inverted in #Robusta and flirting with #inversion in #Arabica down the curve. If the Arabica market moves to sustained #backwardation this will be a clear and present bullish signal for the market.
The range has become well defined in the last few weeks between 200 and 210. The main thing we are looking for here is a breakout of the range in either direction, but the market seems to be making higher lows which implies that the market momentum is in favor of the bulls.
December will bring the first credible forecasts to the Brazil crop for the 22/23 season. Yes, we know that the crop was compromised from frost and drought, perhaps catastrophically so. However, forecasts for the number of bags were coming in within hours of the frosts, with additional forecasts made before the first flowering. While many of these forecasts were done by seasoned professionals, any output estimate is an educated guess this early.
It won't be until the immature beans start developing on the branch that we can start getting some actual figures for the crop. These numbers will circulate the market from the major tradehouses and analysts and will be the primary driver of how the market moves in the next leg of its journey.