HomeMost PopularThe Bitter Brew: Arabica Coffee Prices Pressured by Drooping Brazilian Real

The Bitter Brew: Arabica Coffee Prices Pressured by Drooping Brazilian Real

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Coffee Market Analysis

May arabica coffee (KCK24) stumbled on Monday, closing in the red, while ICE robusta coffee (RMK24) managed to hold its ground with a positive finish.

The wavering Brazilian real has cast a looming shadow over arabica coffee values, with the real plunging to its lowest in 4.5 months against the dollar. This depreciation is prompting Brazilian coffee producers to step up export activities, further weighing down arabica coffee prices.

Robusta Outlook

Conversely, robusta coffee trended higher on Monday, building upon gains from the previous session. This surge is fueled by expectations of a global supply deficit for 2024/25, following a forecast by Marex Group Plc. The prediction points to a deficit of -2.7 million bags due to diminished output in Vietnam.

Industry Dynamics

In contrast, Rabobank’s projection of a 4.5 million bag surplus for the upcoming 2024-25 season introduced a bearish undertone. Although, the bank’s reduction in the 2023-24 production forecast by 3.9 million bags to 171.1 million bags has provided a silver lining, primarily due to revisions in production estimates for Indonesia and Honduras.

Inventory Levels

Coffee prices are being underpinned by depleted inventories. ICE-monitored robusta coffee stocks hit a record low on February 21, only to rebound slightly to a 6-week high on Monday. Similarly, ICE-monitored arabica coffee inventories plunged to a 24-year low in late November but saw a moderate recovery to a 7-month high recently.

Weather Patterns

The scarcity of rainfall in Brazil is another factor driving support for current coffee prices. Reports indicate that the Minas Gerais region in Brazil, which contributes significantly to the country’s arabica crop, has received well below average rainfall, further straining coffee production.

Robusta Supply Chain

Vietnam’s robusta coffee market is experiencing tight supplies, pushing prices higher. The country’s coffee production for the 2023/24 year is anticipated to plummet by -10%, hitting a four-year low due to unfavorable weather conditions.

Global Exports and Production

The upsurge in coffee exports from Brazil poses a downside risk to prices, with reports showing a significant increase in January’s outbound shipments. Conversely, data from the International Coffee Organization (ICO) reveals a growth in global coffee exports, setting a positive tone for the industry.

Climate Events and Projections

This year’s El Nino weather phenomenon is predicted to impact coffee production positively due to its potential effects on weather patterns in key coffee-producing regions. The forecasted increase in global coffee production for the 2023/24 season presents a mixed outlook, with a slight surplus expected in the market.

Outlook and Forecasts

The USDA’s Foreign Agriculture Service (FAS) projects a rise in world coffee production for the upcoming season, with expectations of growth in arabica production offsetting a decline in robusta output. Ending stocks are forecasted to decrease, influenced by higher yields and increased acreage in major coffee-producing countries.

More Coffee News from Barchart

On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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