• Arabica coffee rose 6.9% on the week to 189.30 c/lb
• Robusta coffee prices rose 11.8% to USD 2825/t
• Cepea indicator for Arabica coffee up 7.9% to BRL 999.29/bag
• Cepea indicator for Robusta coffee up 8.9% to BRL 772.26/bag
• Weather in Brazil was the main reason behind the rise in prices
• Cecafé: Brazilian raw coffee exports up 18.2% in November
• Volume of Robusta coffee exported up an incredible 677.9%
• Coffee export revenues fell by 10% in the month
• Exports of processed coffee fell 18.6% to 231,400 bags
• Weather market expected to continue in the coming weeks
• Rain forecast for the next few weeks should ease conditions on the fields
• Certified stocks still a key factor for prices
Note: Due to the Christmas and New Year holidays, the Coffee Weekly Reports will be temporarily suspended, with a scheduled return on 08/01/2024.
We wish our readers a Merry Christmas and a Happy New Year.
As reported in other editions, the impacts of El Niño and the weather conditions in Brazil are the main focus of market participants. Unfavorable weather conditions for the development of the 2024/25 crop, such as high temperatures and dry weather, have fueled agents' concerns and supported the strong increases in prices seen last week.
At the beginning of the week, even with some models pointing to the return of rain in the second half of the month, the announcement that a new heat wave would hit the coffee producing regions supported an increase of 695 points (3.9%) in New York and USD 96/ton (3.8%) in London in the December 11 session alone. Futures prices continued to move upwards in the following sessions, with the highlight being the rise seen on Tuesday (12) at the London terminal, when Robusta prices rose by a further USD 102/t (3.9%).
Although this is nothing new, in addition to weather issues, the low levels of certified stocks continue to be a positive factor for prices. On a weekly basis, Arabica coffee futures gained 1215 points (6.9%), closing Friday (15) at 189.30 c/lb. In London, Robusta futures rose USD 299/t (11.8%) to USD 2825/t.
Weekly intraday (most active contract) - 12/11 to 12/15
Following the trends seen abroad, coffee prices on the Brazilian domestic market also ended the week with significant gains. For Arabica coffee, the Cepea indicator showed an increase of 7.9% to BRL 999.29/bag. For Robusta, the rise was even more significant, accounting for gains of 8.9% over the week, an increase of more than BRL 63/bag, closing last Friday at BRL 772.26/bag.
Also last week, Cecafé released its report with export data for the month of November, which rose 15.4% compared to November 2022, totaling 4.3 million bags exported. Despite the increase in volume, export revenues fell 10.2% to 810.4 million dollars, due to lower prices. Total raw coffee exports reached 4.097 million bags, representing an increase of 18.2%. Of these, 3.24 million bags were Arabica coffee, which fell 3.4%, and 855,900 bags of Robusta coffee, which rose an incredible 677.9% year-on-year.
Brazilian raw coffee exports (million bags)
On the other hand, exports of processed coffee fell by 18.6% to 231,400 bags. The significant increase in exports of Robusta coffee is a reflection of the greater competitiveness of Brazilian coffee compared to other origins, especially Vietnam and Indonesia, which have been facing production problems due to the weather.
In principle, from the point of view of fundamentals, the perspective of market participants is that Brazilian coffee production should show an important increase in 2024, for both Arabica and Robusta coffee, which can be seen from the production projections of some players, who have released optimistic estimates for 2024, with figures above 70 or 75 million bags. This optimism is being challenged by some players, given the adverse weather faced in some coffee producing regions in Brazil, especially in Robusta producing areas in the north of Espírito Santo and the south of Bahia.
When assessing the coffee markets on a segmented basis, we can see that even in a situation of greater global coffee supply, the Robusta coffee market would have a different outlook. Even with a scenario of a large production of Robusta coffee in Brazil, the commodity's supply would be limited, as key countries involved in production are still facing problems. This is the case in Indonesia, which saw an 18% drop in production in 2023/24 and may have another year of problems in a row, as El Niño has contributed to below-average rainfall in the country, a condition that has now lasted four months in a row.
For Vietnam, the world's largest Robusta producer, the USDA has reduced its projection for the 2023/24 crop by 3.8 million bags and there is already great concern about the possible impact of El Niño on the country's next crop. This whole scenario comes against a backdrop of heated global demand for the variety, which leads us to believe that the balance of supply and demand for Robusta coffee could be tight or heading towards a deficit.
For Arabica coffee, there is still a certain optimism about the production potential in 2024, but some factors have already indicated that Brazilian Arabica production may also be being impacted by El Niño. In a recent report, StoneX, after an initial tour of the producing regions, reported that water stress was evident in some regions of the cerrado in Minas Gerais. On the other hand, some regions in the south of Minas Gerais had crops in good condition. However, the anomaly map, which compares the accumulated rainfall with the historical average, shows that both the Cerrado and the south of Minas Gerais have had substantially below-average rainfall in the last two months.
Anomaly - % of rainfall compared to historical average (60 days)
In general, the greatest concern is concentrated in the Robusta coffee-growing regions of northern Espírito Santo and southern Bahia. Like in 2015, the last time there was a strong El Niño, the phenomenon caused high temperatures and dry weather in the aforementioned producing regions. Looking at the anomaly map, it is possible to see that the far north of the state of Espírito Santo and the south of Bahia have had substantially below-average rainfall over the last two months.
As such, the weather market should continue for the next few months, given that, according to the NOAA, the transition from El Niño to Neutral would only happen in the April-June quarter. Weather forecast models have pointed to significant amounts of rain in the coming weeks, both for Arabica and Robusta coffee areas, which should ease the weather conditions on the fields. However, as El Niño is expected to continue for the next few months, weather conditions will continue to be one of the main issues for market participants.
The weather will undoubtedly not be the only factor influencing future coffee prices, with certified stocks being another extremely important issue for the coming weeks. The historically low volume of stocks has a bullish tone for prices in New York. If stocks increase, this would have a negative bias for coffee prices. As we have seen in other issues of the coffee reports, certified stocks are closely linked to the level of differentials in origins, with a weakened differential favoring the certification of coffees, while a strengthened differential scenario has the opposite effect.
With these mechanics in mind, we can analyze which origins have the potential to supply new coffees to certified stocks. In recent months, price differentials have fallen in some producing countries, especially Colombia and Honduras. Therefore, if the differentials continue to weaken, below the parity level, there is a possibility that these countries will start certifying new coffees in the stock exchange's accredited warehouses, which would have a negative effect on coffee prices. It is worth remembering that both Colombia and Honduras continue to make progress in the harvest period, which should last until January in the South American country and until February in the Central American country.
