Coffee Prices Extend This Month’s Rally on Global Crop Fears

Coffee prices have surged, with robusta coffee posting a new all-time high. This month’s rally is being supported by coffee crop concerns in Brazil and Vietnam, which are fueling fund buying of coffee futures. Brazil’s Minas Gerais region received 15.8 mm of rainfall in the past week, or 74% of the historical average, which accounts for about 30% of Brazil’s arabica crop. Robusta coffee is surging to new record highs on fears that excessive dryness in Vietnam will limit the country’s robusta coffee production.

The weaker Brazilian real (^USDBRL) has been a bearish factor for coffee futures, as it fell to a 6-1/4 month low against the dollar today. This weaker real encourages export selling by Brazil’s coffee producers. Tight robusta coffee supplies from Vietnam, the world’s largest producer of robusta coffee beans, are a major bullish factor. On March 26, Vietnam’s agriculture department projected that Vietnam’s coffee production in the 2023/24 crop year could drop by -20% to 1.472 MMT, the smallest crop in four years, due to drought. The Vietnam Coffee Association also said that Vietnam’s 2023/24 coffee exports could drop -20% y/y to 1.336 MM. Marex Group Plc forecasts a global 2024/25 robusta coffee deficit of -2.7 million bags due to reduced output in Vietnam.

Fund buying has supported this month’s surge in coffee prices, with funds boosting their long arabica coffee positions by 9,560 net-long positions to a record 66,885 in the week ended April 9. However, the record-long position could also exacerbate long liquidation pressures in a price downturn.

Coffee inventories have rebounded from historically low levels, with ICE-monitored robusta coffee inventories falling to a record low of 1,958 lots, but recovering to a 3-month high of 3,376 lots. Larger coffee exports from Brazil are bearish for prices, with Brazil exporter group Comexim raising its Brazil 2023/24 coffee export estimate to 44.9 million bags from a previous estimate of 41.5 million bags.

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