Want a quick peek in the crystal ball?
This week, we’re bringing you insights from our colleague and market guru, Ilya Byzov. Ilya, Quantitative Trader at Sucafina North America (SUNA), has been sharing his market analyses with SUNA customers for some time and we’re excited to see his work crossing the pond to add even more knowledge to our weekly newsletter.
In only 35 days, we have come from approaching yet again the lowest prices in 14 years to seeing the highest prices in 21 months. From the point of view of farmers harvesting their crop in Central America and Colombia, this is nothing short of a Christmas miracle. Combined with the weakness of the Colombian Peso and Brazilian Real, farmers in Colombia and Brazil are now seeing the highest prices since November 2016, when coffee futures were at 175 cents/lb.
Last week, coffee prices continued their parabolic ascent, rising 6.4 cents on the week to end at 124.85 basis March contract as of Thursday. The market saw another increase at the beginning of this week, with a 131.10 basis of March contracts as of Monday afternoon. This is certainly wonderful news: if farmers choose to sell here they will for sure have enough now to support their ongoing farm maintenance and even have some cash for improvements/upgrades of their farms. Are they selling? So far, we feel the answer is no. Differentials, a metric for determining physical prices for a specific grade of coffee in a country, should be going down during the pressure of the harvest if more farmers choose to sell. However, in the case of Colombia and Honduras, these differentials remain stubbornly tight. In the case of Ethiopia, many qualities are actually seeing higher differentials. How can this be? Either human psychology is taking over and farmers are not willing to part with a rapidly appreciating asset, or there are more structural issues with the crop than most people realized. I believe it is more of the former, which unfortunately means that farmers will have to chase the market on its way down.
About Our Market Guru
Ilya Byzov, Quantitative Trader at Sucafina North America (SUNA). Byzov began his career as a trainee in market risk. After over three years of Friday “culinary explorations” with co-workers who worked in green coffee trading, Byzov transitioned to the world of green coffee. He joined SUNA about 1.5 years ago. When he’s not hard at work interpreting the market, Byzov enjoys running with his dog and making paella.