Coffee Weekly Report

In addition to the dollar's rise in the Brazilian market influencing the devaluation of coffee prices, the macro environment also made a negative contribution, especially in the second half of the week, with the rise in the dollar index putting pressure on the commodities complex in general. On Friday (2), the significantly better-than-expected result of the Employment Situation Report, released by the US Department of Labor (DOL), increased risk aversion in global markets as it postponed the expected date for the start of interest rate cuts by the Federal Reserve. The report indicated that 353,000 new jobs opened up in the US labor market in January, against market projections of 170,000, contrary to the "soft landing" interpretation of some operators.

As a result, bets on the interest rate being kept unchanged at the Fed's March meeting rose from 53% to 84.5%, with 62% of agents believing that cuts will begin at the US central bank's May meeting. It is worth remembering that a scenario in which interest rates remain high in the United States for longer contributes to agents seeking safer yields, such as fixed-income securities in dollars, and discourages demand for risk assets, such as shares, commodities and currencies of emerging countries, like the Brazilian real.

As mentioned above, the futures price curve remains inverted in both New York and London, as can be seen by the greater appreciation of the contracts with closer maturities. This inversion is a reflection of lower supply in the short term while demand for coffee recovers. Despite the uncertainties, some indicators corroborate this scenario, such as Starbucks' stock data and financial results. In addition to certified stocks, which are at their lowest level since the 1990s, stocks in Japan, for example, fell by 8.8% year-on-year in December and are at their lowest level since 2017. Meanwhile, Starbucks' financial results for the first quarter of fiscal 2024 showed a 5% increase in global sales. In North America, sales increased by 5%, while in the rest of the world the increase was 7%.

Last week also saw the release of export figures from some Central American countries. According to the Honduran National Coffee Institute (IHCafe), exports from the country totaled 476,200 bags in January, representing a drop of 8.6% year-on-year and bringing the accumulated total for the crop year to 781,600 bags, which is 3.5% lower than the accumulated total for the same period last year. In Costa Rica, the drop in exports was even greater in January, with the volume exported falling 28% to 60,700 bags, according to the Costa Rican Coffee Institute (ICafe). For the crop year as a whole, Costa Rica exported 133,900 bags, representing a 9.1% drop year-on-year.

From the point of view of fundamentals, the focus of the market continues to be on the development and prospects for the Brazilian crop in 2024/25. Data released by public and private entities already reflect a scenario of discrepancy and uncertainty between estimates, a condition that is nothing new for coffee. From the projections released in recent weeks, the difference already exceeds 10 million bags, with Conab betting on 58 million bags and other private agents betting on more than 70 million bags. StoneX has completed its second round of visits to the producing regions and will soon release the results of the study and the company's official projections for the Brazilian crop in 2024. In addition, market participants are likely to take note of Brazil's January export figures, which will be released by Cecafé, and closely monitor issues related to the limited supply of Robusta coffee in Asia and the logistical challenges caused by the conflict in the Middle East.