Daily Coffee Report 8/5/26
Daily coffee report
StoneX Coffee Team
- Coffee
Coffee Weekly Report
By: StoneX Intelligence Brazil, StoneX Intelligence Brazil
Coffee futures end the week with mixed results
Despite the drop in arabica prices in recent weeks, coffee futures ended Q1 23 with a positive balance, mainly for robusta
HIGHLIGHTS
- Arabica coffee futures were down 875 points (4.9%) on the week and 1580 points (8.5%) on the month
- Robusta coffee prices rose USD 17/t (0.8%) in the week and USD 66/t (3.1%) in the month
- Arabica coffee prices gained 1.9% and Robusta gained 20.8% in the first quarter of the year
- Cepea indicator for arabica fell by 6.9% in the week and 10% in the month
- Possible 20% drop in production in Indonesia supports Robusta coffee prices ▲
- Concerns about demand will continue to impact the market ▼
- Beginning of the Brazilian harvest puts pressure on coffee prices ▼
- USDA to release attaché reports in second half of May
- Final report with USDA's global balance sheet will be released on June 22
- Approaching Brazilian winter may bring volatility to coffee prices
- Dollar plunges in the week amid eased global risk aversion and disclosure of Brazil's new fiscal framework ▲
- Brazilian currency appreciates in the first quarter of 2023
- Negative correlation between dollar and coffee prices may return in the Q2
▼ Bearish drivers ▲ Bullish drivers
In the last week of March, arabica coffee futures prices closed Friday (31) with 875 points (4.9%) of losses, quoted at 170.50 c/lb, with the monthly variation showing an even more intense fall, with losses of 1580 points (8.5%) during the month of March. With no major changes in fundamentals, prices followed technical factors during the week. Part of the strong fall seen last week can be attributed to a strong liquidation movement from speculative agents.
In London, the most active contract ended with gains of USD 17/t (0.8%) in the week and gains of USD 66/t (3.1%) in the month, closing the last session of March quoted at USD 2206/t. Robusta coffee prices rose higher due to technical factors and agents' concern with the supply of the product.
While Vietnam, the world's largest producer of this variety, is at the beginning of the inter-crop period, Indonesia, the third largest producer of Robusta in the world, faced adverse weather conditions, which should impact the country's production. According to an article by Bloomberg after an interview with the Association of Exporters and Coffee Industry of Indonesia, production should total 9.6 million bags, representing a decrease of 20% compared to 2022, which is a result of excessive rainfall in the country.
Weekly Intraday (most active contract) | March 27 to 31
Source: CommodityNetwork Traders' Pro. Design: StoneX.
In the Brazilian domestic market, both varieties ended in decline, but arabica coffee had more pronounced losses. The Cepea indicator for arabica coffee ended last week quoted at BRL 1044.94/bag, representing a drop of 6.9% in the week and 10% in the month. On the other hand, Robusta coffee prices closed the last session of March with the Cepea indicator at BRL 638.64/bag, indicating losses of just 0.3% in the week, but a fall of 8% in the month.
Both Arabica and Robusta coffee markets were more influenced by movements in the type “C” contract in New York. Therefore, the decline in prices reflects the drop in prices in NY as well as the dollar decline in the period. The USDBRL pair ended quoted at USDBRL 5.06, reflecting a drop of 3.4% in the week and 3.3% in the monthly variation.
Coffee futures market ends the first quarter of the year with a positive balance
Since the last quarter of 2022, arabica coffee futures prices have been under pressure amid the prospects of a large crop in Brazil, following the return of rains to the country's coffee belt and concerns about demand due to the inflation scenario and doubts regarding the growth of the global economy. In the last quarter of 2022, arabica coffee futures prices accounted for losses of 24.5% while Robusta prices retreated 16.4%.
Marked by volatility, the first quarter of this year was positive for coffee futures prices, mainly robusta. Since the beginning of the year, arabica quotes rose by 15.6% to a maximum 193.35 c/lb on February 22, but the movement lost strength and prices retreated, consolidating an advance of only 1.9% at the end of the quarter. On the other hand, the future prices of robusta gained 23% to the quarter's highest value of USD 2214/t at the close of March 27, later retreating to USD 2173/t and consolidating an increase of 20.8% in the first quarter of the year.
Trend of arabica and robusta coffee futures prices
Source: CommodityNetwork Traders' Pro. Design: StoneX.
While coffee prices continued to be pressured amid optimism about the Brazilian crop in 2023, with projections by some agents reaching above 75 million bags, the release of several estimates, including StoneX, indicated that the crop would not be so large, which frustrated some of the agents and supported the price rises.
The average of available estimates for coffee production in 2023 is 63.5 million bags. After carrying out a study, StoneX estimated the Brazilian crop at 62.3 million bags, of which 40.7 million should be arabica coffee and 21.6 million robusta coffee. For robusta, prices rise in reaction to agents' concerns with supply, mainly due to the inter-crop period in Vietnam and the drop in production in Indonesia.
Range of estimates for coffee production in Brazil (million bags)
Sources: StoneX and USDA. Design: StoneX.
One factor that limited advances and pressured arabica prices at the end of the quarter was concerns about demand amid inflation. According to Brazil's Abic, there was a 35% inflation in roasted and ground coffee, resulting in a drop of more than 1% in consumption. While the pace of inflation lost strength in Brazil, the pace of inflation in the US and Europe is still worrying. For the next quarter, demand will continue to be a point of attention and the indicators of exports, imports and, mainly, stocks and inflation in consuming countries, should indicate their pace of consumption.
In addition, the period may suffer from volatility due to the start of the Brazilian winter, considering that, although there are still no signs, a polar mass with the potential to cause frost may support price increases and generate volatility, since they tend to retreat if the event does not happen. It is important to mention that, despite the uncertainties, coffee prices should be pressured as the new Brazilian crop is harvested and made available on the market.
Finally, much of the attention will turn to the USDA attaché reports, which will bring details on coffee production in the countries in 2023 and should be released in the second half of May, but without a defined date. On June 22, the USDA will release its final report with the perspectives for the global balance of supply and demand in 2023/24.
Dollar plunges in the week amid eased global risk aversion and release of new Brazilian fiscal framework
Last week saw continuous devaluations of the exchange rate in the Brazilian foreign exchange market, influenced by reduced fears about a financial crisis in the United States and Europe and the disclosure of a new fiscal framework proposed by the current government, which contributed to agents recovering the appetite for the Brazilian currency. In this scenario, the dollar closed with a change of 3.4% in the week and 3.0% in the month, closing last Friday (31) at BRL 5.07.
While concerns about a banking crisis are gradually being reduced, market participants should monitor the banks' quarterly earnings reports throughout April, in particular small US regional banks, in order to assess whether the nation's financial system remains sound.
In Brazil, the disclosure of a new framework for fiscal policy by the current government's economic team, which seeks to provide greater predictability for public accounts in the coming years, received a generally positive repercussion from investors, which also contributed positively to the Brazilian real's appreciation.
The first quarter of the year was very volatile for the Brazilian foreign exchange market, which ended the period with an appreciation of 1.0% compared to the end of 2022. The dollar in Brazil, which historically tends to have a negative correlation with coffee prices for the most part, has not shown such influence in this period. In the last 12 months, the correlation between the USDBRL pair and the 1st contract on the New York exchange was -40.4%, that is, dollar declines positively influenced the price of coffee, and vice versa, but in the last three months the correlation reached 5.0%.
Coffee quotes (KCc1) vs. USDBRL in Q1 2023
Source: Traders' Pro. Design: StoneX.
Despite a brief period of time, the performance shows how the exchange rate played a secondary role for coffee prices, especially in January and February, when they were significantly impacted by the realignment in general market sentiment, with some agents reducing their expectations of a possible record crop in Brazil.
Seasonally, in the inter-crop period, especially between April and June, when market fundamentals are more mutated, the negative correlation between dollar prices and coffee reaches its most accentuated period. Even though it is not a rule, this must be a fundamental moment to monitor the macroeconomic scenario. The aversion to the risk of a banking crisis, the expectations for global inflation and interest rates of the main central banks in the world and the development of the Brazilian fiscal framework proposal in the Chamber of Deputies and Senate, as well as its influence on the Central Bank's next decisions, will be the focus of coffee market participants, with possibilities of strong influence on the exchange rate, and, as a consequence, on coffee prices both in the physical market and on the exchange.
INDICATORS
Sources: ICE/NY, ICE/EU, B3, Commodity Network Trader’s Pro.
- Coffee
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