Coffee Weekly Report

Over the past week, changes in the macroeconomic and currency scenario have been very positive for coffee prices. The USDBRL depreciation, after the less than expected data of the American economy and the strengthening of the real, after the disclosure of the lower-than-expected IPCA, supported the advance of coffee quotes in the international market (for more details read the foreign exchange and macroeconomics session of this report). In the period, there was also the release of Cecafé data, which showed that Brazilian exports were weakened in March. In addition, there was a greater appetite on the part of speculative agents for risky assets such as commodities, including coffee. 

While the dollar/real pair fell by 2.8% to BRL 4.91, Arabica futures prices advanced by 980 points (5.4%), closing Friday's session (14) quoted at us US₵ 191.50/lb. In London, the most active contract ended the period with an increase of USD 88/t (3.9%), closing the week quoted at USD 2344/t. 

Coffee prices in the domestic market also advanced in response to movements abroad. The Cepea indicator for Arabica coffee ended the week high by 2.2% to BRL 1125.42/bag, while Robusta coffee advanced 1.7% to BRL 664.28/bag. 
 

Weekly Intraday (most active contract) - April 10 to 14

Latest CFTC/COT report showed a strong advance in spec funds' positions in New York and London. In New York, the report indicated that between April 04 and 11, spec funds went from a net short position of 342 contracts to a net long position of 10,907 contracts, with agents covering part of the short positions and adding more than 7,800 long contracts. In this period, the index funds had an increase in the net long position of 993 contracts, but liquidated  more than 1,6 long and 2,6 short positions. Coffee futures prices showed an advance of 1450 points (8.33) to US₵ 188.45/lb.

Funds position in coffee on the ICE/New York

Source: ICE, CFTC. Design: StoneX. 

In London, the funds extended their net long position from 26.7 thousand to 32.4 thousand contracts, with a small short covering, but an addition of more than 5 thousand long contracts. Reflecting the appetite of agents, Robusta coffee futures prices advanced USD 104/t (4,7%), closing Tuesday (11) quoted at USD 2323/t. 

Last Wednesday (12), the Council of Coffee Exporters (CECAFÉ) released its official data on Brazilian coffee exports in March, which came in line with data previously released by Secex, which had pointed to a 20% drop in exports in the month. According to the Cecafé report, Brazil exported 2.78 million bags of coffee, representing a drop of 19.4% compared to the same month last year. Of these, 107.3 thousand bags of Robusta (-20.9%) and 2.67 million bags of Arabica (-19.3%) were exported. 

The March export result completes a series of months with a substantial drop in Brazilian exports, following the 18% drop in January and 33% in February. While for some, the drop in exports reflects a reduced demand for coffee by importing countries, others argue that it would reflect a lower availability of coffee in Brazil and even a seasonal trend. In any case, it is worth mentioning that, despite the drop from the previous year, exports in March showed an advance compared to the first two months of the year, +29.6% compared to February and +10.8% compared to January. 
 

Brazilian coffee exports (million bags)

Source: Cecafé. Design: StoneX. 

In addition to the Cecafé data, there was the release of coffee production data in Colombia in March by FNC and the update of estimates for Brazilian production by IBGE. According to FNC, Colombian coffee production totaled 799 thousand bags in March, reaching the lowest volume in 11 months and representing a drop of 13%. 

In Brazil, IBGE adjusted its estimate for Brazilian coffee production in 2023 by 0.7%, to a total of 55.7 million bags, which would represent an advance of 6.5% compared to last year's production. 

This week, part of the attention will turn to the analysis and interpretation of data inventories in American ports, which will be released today (17). Historical data indicate that there was an average drop of 1.5% in inventories in March, but the current scenario should be analyzed with caution and together with import data in the US, in order to clarify the pace of consumption in the country.    

Sharp USDBRL depreciation and macroeconomic environment support coffee prices

Influenced by lower-than-expected data in the United States, with emphasis on Brazilian and American inflation in March, and by expectations for the fiscal framework in Brazil, the exchange rate posted a significant weekly drop of 2.8%, with the real/dollar pair quoted at BRL 4.916. The recent falls of the American currency have had an important influence on the advances of coffee in the exchange. Since March 23, the USDBRL has already accumulated a loss of 6.6%, and today it is trading at its lowest level in 10 months.

In addition to the exchange rate factor, the macroeconomic environment has influenced prices. In addition to softer activity data for the US economy, the country's Producer Price Index (CPI) for March registered an increase of only 0.1%, below the expectations of 0.2% and slowing significantly compared to the previous month (0.4%). Slowing indicators of the economic activity level have contributed to the perspective that the Federal Reserve is expected to end its cycle of interest rate hikes in the country in its next decision on May 3. 

Although Fed members assure that the key rate will not be reduced until the end of the year, most market bets expect the Fed to promote a reduction from September to avoid the risk of a recession after the historically rapid increase in the benchmark rate. This scenario has contributed to an outflow of investment flow from American fixed-income assets towards riskier assets, has watered pressures on the dollar index and favored commodities and currencies of emerging countries, such as the real and the Colombian peso.

An interesting factor also revealed by the CPI data in the United States was the 2,6% drop in prices of roasted and ground coffee to the American consumer. This was the largest one-month reduction since May 2021, leading to 12-month cumulative inflation falling from 19.6% in February to 13.9% in March, the lowest level since April last year. Although doubts about demand still surround the market, the cooling of inflation in the world's largest coffee consumer may bring some optimism about the consumption of the product.
 

Consumer roasted and ground coffee inflation in the United States

Source: BLS

In Brazil, the National Broad Consumer Price Index (IPCA) for March, released by IBGE, showed an increase of 0.71%, below the 0.77% expected by the market. With this, accumulated inflation was 4.65%, the lowest result since January 2021 (4.56%), staying within the Central Bank's inflation target and contributing to the attractiveness of the BRL. On the other hand, the result for consumer roasted and ground coffee was -1.41%, with the accumulated in 12 months going from 4.9% in February to 0.5% in March.

On this week's economic calendar, Eurostat will release the consolidated result of the CPI of the eurozone next Wednesday (19), the only region among those analyzed in which coffee has not yet shown a slowdown in the rise in consumer prices.

Sources: ICE/NY; ICE/EU; B3; Commodity Network Trader’s Pro.