• Arabica coffee ends the week quoted at 151.90 c/lb, down 0.8%
• Robusta coffee prices gained 1.8% to USD 2482/t
• The Cepea indicator for Arabica coffee ended the week up 0.9%
• The Cepea indicator for Robusta coffee rose 1%
• High dollar pressured arabica prices
• Brazilian GDP results for the 2nd quarter favor expectations for the economy in 2023
• After GDP in Brazil and employment data in the US, the week began with corrections in the exchange rate
• Robusta rises amid falling exports in Asia
• GSO: preliminary data points to 20% drop in exports in Vietnam
• Exports on the island of Sumatra fell by more than 10%
• Preliminary Secex data points to 41% rise in Brazilian exports
With no major changes in fundamentals, Arabica coffee futures ended last week down, with market operators describing the sessions as calm. In New York, Arabica coffee prices were pressured by the progress of the harvest in Brazil and the rise in the dollar during the week, which was up 1.5%. Undoubtedly, the price movements mainly reflected the activity of speculative agents. The most active contract, expiring in December, ended the period with losses of 125 points (0.8%), closing Friday quoted at 151.90 c/lb.
While Arabica coffee prices retreated, Robusta coffee futures posted a sharp increase in London, with the most active contract, for November, closing the period up USD 45/t (1.8%), quoted at USD 2482/t. Robusta prices continue to be supported by the product's reduced supply in Asia.
Weekly Intraday (most active contract) – August 28 to September 1
Vietnam's export data showed that there was a 22% drop in shipments between June and July this year, with the volume exported in July being 4.4% lower than the total for July 2022. In addition, preliminary figures from the Vietnam General Statistics Office (GSO) for August point to a total of 1.5 million bags shipped, representing a drop of more than 20% compared to August 2022. In Indonesia, official government data indicates that the volume of exports from the island of Sumatra totaled just over 252,200 bags in July, which is 10.3% less than the volume exported in the same month last year.
In Brazil, due mainly to the dollar rise, coffee prices on the domestic market ended the week with gains. The Cepea indicator for Arabica coffee rose by 0.9%, ending last Friday at BRL 818.18/bag. The same indicator for Robusta coffee recorded gains of 1% over the week, closing Friday (01) quoted at BRL 654.28/bag.
As mentioned above, the rise in the dollar had a negative influence on Arabica prices. Gains in the exchange rate were recorded mainly in the second half of the week, as the US currency traded higher abroad amid doubts about the performance of the US economy and the Federal Reserve's next monetary policy decision, and amid the perception of a worsening fiscal situation in Brazil. The dollar ended last Friday (1) quoted at BRL 4.941, a weekly increase of 1.5%.
Despite last week's rise, on Monday (4) the Brazilian real began to recover against the dollar, supported by the IBGE's announcement last Friday that Brazil's GDP grew by 0.9% in the second quarter of the year. The performance followed on from the 1.8% growth in the first quarter, meaning that the accumulated figure for the first half of 2023 is 3.7%. Following the announcement, the Focus Bulletin released on Monday morning saw a significant change in agents' bets for the performance of the Brazilian economy, going from a projection of a 2.31% rise in GDP during the week to an expectation of a 2.56% increase in the latest report. The indicator tends to provide a bearish bias for the dollar this week on the Brazilian currency market, which could lend some support to relieve the downward pressure on coffee prices on the exchange.
Abroad, the US employment situation report showed that 187,000 new jobs were created in August, slightly above analysts' expectations of 170,000 new positions. The unemployment rate rose from 3.5% in July to 3.8% last month, above the 3.5% expected by the market. As such, the result corroborates the view that the country's economy is going through a "soft landing", and that it will not be necessary for the US central bank to carry out further interest rate increases. In this context, 93% of the market's bets are that the Fed will keep the basic interest rate at the current level when it meets on the 20th. This reading could favor risk assets such as commodities and the currencies of emerging countries, such as the Brazilian real and the Colombian peso.
From the point of view of fundamentals, there have been no major changes since the last edition of the weekly coffee report. For the Arabica market, the completion of the Brazilian harvest and the availability of coffee on the market tends to be bearish. In addition, the focus is already on the Arabica coffee flowering season in Brazil, which could be widespread once the rains arrive. It should be remembered that the opening of a large flowering season and the maintenance of favorable weather could have a negative effect on prices, as it might lead to optimism about the size of the 2024 crop. In addition, problems with coffee consumption in the US and Europe also tend to have a negative effect on quotes.
On the other hand, bullish factors on the Robusta side are supporting both Robusta coffee prices and, to some extent, Arabica prices. The reduced supply of coffee in Asia will continue to be a bullish factor for prices, a scenario that can be easily identified by the sharp reduction in exports as shown above. In addition, the possible impact of El Niño on Robusta producing regions in Brazil could also have a positive influence.
In the coming weeks, in addition to the weather, it will be important to follow the release of export data in Brazil by Cecafé, which should probably point to a strong advance in export volumes and act negatively for prices. Preliminary export data released by the Secretariat of Foreign Trade indicates that August exports totaled almost 3.3 million bags, which represents an increase of 41% compared to the volume exported in the same month in 2022.
