COFFEE: Still Consolidating and Holding Above Mid-March Lows

While coffee has been unable to maintain an upside move for more than 2 sessions in a row since early April, the market has avoided a retest of its mid-March lows. With near-term demand concerns starting to ease, coffee prices have a better chance of lifting well clear of their late April/early May lows. Forecasts for the La Nina weather event to continue through late this year have provided significant support to coffee prices. Brazil should see larger production with 2022/23 being an "on-year" crop, but the drier than normal conditions that La Nina brings to Brazilian Arabica growing areas will limit any increase from 2021/22 output.

Colombia has seen heavier than normal rainfall lead to quality concerns for their coffee production, and that has also underpinned coffee prices over the past few weeks. In addition, a more than 1% rebound in the Brazilian currency was a source of carryover support to the coffee market as that eases pressure on Brazil's producers to market their near-term coffee supply. ICE exchange coffee stocks fell by 3,391 bags on Tuesday and have declined in 3 of the past 4 sessions, which may be a sign that they are close to a near-term top.

MARKET IDEAS

If ICE exchange stocks start to consistently decline while export bottlenecks appear to be easing, it would indicate that near-term demand is starting to improve. With Brazil and Colombia likely to have supply issues into the third quarter, coffee prices have a good chance of turning higher. Near-term support for July coffee is at 215.80 while resistance is up at 225.95.