Coffee Mar '25 (KCH25)
330.25c/lb +16.75c/lb (+5.34%) 06/12/24 [ICE/US]
AUD $11.37/kg
Robusta Coffee 10-T Jan '25 (RMF25)
5,153 USD/MT +258 USD/MT (+5.27%) 06/12/24 [ICE/EU]
AUD $8.05/kg
Coffee Prices Surge, Then Plummet Amid Volatile Trading
The coffee market remains in flux as futures for arabica and robusta reached historic highs before a steep correction this past Monday. Arabica coffee futures surged 5.3% last week, hitting US¢ 318.05/lb, while robusta futures increased 9.2%, reaching USD 5,377/ton. However, a significant sell-off brought prices back down, reflecting the market's underlying volatility.
Production Concerns Take Centre Stage
Brazil:
Fears surrounding Brazil's 2025/26 crop remain paramount. Preliminary estimates indicate a 10.9% drop in arabica production due to prolonged droughts during the flowering stage.
Brazil exported 41.45 million bags of coffee in the first 10 months of 2024, up 35% year-on-year, but logistical constraints have left 1.7 million bags stuck at ports, adding to supply chain stress.
Vietnam:
Excessive rainfall during the robusta harvest has severely disrupted exports, contributing to a 49% year-on-year drop in November shipments.
Colombia:
Container shortages continue to plague Colombian ports, particularly Cartagena and Santa Marta, where capacity issues are delaying coffee shipments. The disruptions coincide with record-high coffee prices.
Demand-Supply Imbalance Drives Prices
Despite increased global production forecasts for 2024/25, the market is bracing for tightness in arabica availability. Brazil’s output challenges, coupled with falling exports from Vietnam, have tightened supply for premium coffee varieties.
Currency Movements and Inflation Compound Issues
The Brazilian real fell sharply last week, exceeding R$6.00 against the dollar for the first time in history. This currency devaluation, paired with rising coffee prices, has pushed inflation higher in both Brazil and the United States. Consumer coffee price inflation in Brazil reached 29% on a 12-month rolling basis through October.
Robusta Exports Surge Amid Changing Trade Patterns
Brazil’s robusta exports rose an astonishing 140% year-on-year, surpassing 7.9 million bags. This marks a significant shift as Brazil overtakes Vietnam in robusta shipments, altering the global trade landscape.
Logistical and Policy Challenges
The European Union’s new deforestation regulations (EUDR) loom large, adding uncertainty for exporters navigating compliance. Meanwhile, freight costs have risen as container shortages persist in major exporting countries.
Glossary of Terms
Differentials: The price spread between a specific coffee origin and the benchmark futures market price.
ICE-monitored Inventories: Stocks of coffee monitored by the Intercontinental Exchange, often indicative of global availability.
Conilon: A term for robusta coffee primarily grown in Brazil.
El Niño: A climatic event associated with drier-than-average conditions in coffee-growing regions.
Colombian Milds: A classification of coffee known for its high acidity and mild flavor, predominantly from Colombia.
Brazilian Naturals: Coffee beans processed using the dry method, leaving fruit flavors in the beans.
Spot Market: A marketplace for immediate settlement of trades in coffee, contrasting with futures contracts.
Hedge: A financial strategy used by coffee producers or traders to lock in prices and mitigate risks.
Open Interest: The total number of outstanding contracts in a futures market, indicative of market activity.
Futures Curve: A graphical representation of future coffee prices over different contract months.
FNC: Federacion Nacional de Cafeteros de Colombia, representing Colombian coffee growers.
ECF: European Coffee Federation, an organization tracking coffee stocks and trade trends in Europe.
Margin Call: A demand for additional funds to maintain positions in futures trading, reflecting price volatility.
Comments