August Coffee Market Report

Good day. Welcome to DRWakefield’s Weekly Coffee Market Report!

This report touches upon the Arabica and Robusta coffee futures market, currency pairings and news from origin. See our Market Report Terms page for clarity on any terminology in the coffee market report below.

Live Market Data

Coffee Market Report 27/08/2024

This report covers the period from Monday 19th August to Friday 23rd August and was written by Henry Clifford.

Coffee Market

It was First Notice Day (FND) for the September-24 Arabica terminal last Thursday and the market strengthened in anticipation. Unfortunately for the trade, the market remains in backwardation so the rolling process is rather costly. This, combined with high (in recent times anyway) interest rates, has contributed to the low spot inventory levels we are seeing across warehouses in the UK and Europe. Until we see consistent contango and/or more rates cuts, spot levels are unlikely to change. Therefore, if you are a traditional spot buyer, it’s definitely worth considering booking up 3 months ahead to cover your stock and ensure you don’t get caught short.

The September terminal opened at 245.50 c/lb, tracking upwards to close at 249.45 c/lb on Wednesday. What is noteworthy is that the market hit levels above 250 c/lb (weekly high was 253.30 c/lb on Tuesday) every day but was unable to close above this important psychological level. If the market closes above this level this might signify more appetite to the upside and perhaps inelastic differentials will finally have to adjust?

Once the market had switched to the December terminal in preparation for FND, there was a small sell-off on Thursday, and the market closed 5.7 c/lb lower than open. Friday saw a bounce back to close out the week at 247.30 c/lb.

COT & certified stocks

↑ Non-commercials increased their Net long by 4,514 lots to total 43,474, leaving the net long shorter by 1,689 lots, at 39,881 lots.

↑ The traditionally more longer term sector of the market, the Index Funds, increased their Net Long Position by 1,146 lots, to register a Net Long position of 49,198 lots. It appears that the appetite for coffee remains strong in the more passive sector of the COT.

↑ Arabica washed certified stock level: 836,921 bags

↓ Arabica pending grading: 25,509 bags

Origin

Typically if you make it through July without a frost in Brazil, the likelihood of one happening after drops considerably. This August has been rather different with talks around frost dominating the narrative and causing a few short term spikes in the market. Frost always piques our interest more than dryness but actually dryness is what has also been on the minds of coffee farmers of late. Excessive dryness in Brazil may cause premature flowering of coffee trees and reduce yields for Brazil’s 2024/25 coffee crop: the rainy season needs to start sooner rather than later so as to ensure yields do not get affected.

Fears around rain are also present in Vietnam, the biggest Robusta producer in the world. Robusta coffee prices are underpinned by anxiety that excessive dryness in Vietnam will damage coffee crops and curb future global robusta production. Vietnam’s agriculture department said on March 26 that Vietnam’s coffee production in the 2023/24 crop year would drop by -20% to 1.472 Million Metric Tonnes (MMT), the smallest crop in four years, due to drought. Also, the Vietnam Coffee Association said that Vietnam’s 2023/24 coffee exports would drop -20% y/y to 1.336 MMT. Reduced coffee exports from Vietnam, the world’s largest robusta coffee producer, are bullish for robusta prices. Who would have thought that Robusta would be over 200 US c/lb? It closed the week at 4,574 $/mt, which translates to 207 US c/lb. With Robusta this bullish, it’s hard to see Arabica becoming too bearish anytime soon.

Currency & Macro Outlook

Rightly so, coffee is the focus of this report, but what is going on in other commodities? This week, I thought it might be interesting to take a quick peak into Cocoa and Sugar, not to mention central banks and their appetite for rate cuts for one week.

On Tuesday, Sugar hit a 21-month low of 17.57 US c/lb – yes, sugar is a fair bit cheaper than coffee! (both Arabica and Robusta interestingly). In the last 12 months it has decreased by 24.48% and it appears this bear trend could keep pushing lower: evidence of increased supplies in key origins such as Brazil and India are strengthening this movement. In India, above-average monsoon rains could lead to a bumper crop-its monsoon season runs from July to September so we are not far off getting clarity on that. In its biannual report, the USDA projected that global 2024/25 sugar production would climb +1.4% year on year to a record 186.024 MMT. However, it also forecasted that 2024/25 global sugar ending stocks would fall -4.7% year on year to a 13-year low of 38.339 MMT. Even if there is a bumper crop across certain origins, it sounds like it may not be enough to address the low levels of current stocks?

There are definitely similarities to coffee and Brazil’s current big harvest in its biennial year and to what extent that will help address low spot levels of coffee.

Cocoa surged to a 2 month high to 7,380 $/mt – this represents 335 US c/lb. While sugar is much cheaper than coffee, cocoa is the opposite currently. The key driver is low supply and fears that dry weather in the key producing region of West Africa may potentially curb global cocoa output. ICE-monitored cocoa inventories held in US ports fell to a 7.5 year low of 2,685,926 bags and this is very supportive to current pricing. In the current price environment, hot chocolate is most certainly not a threat to the flat white on the High Street.

Coffee Market Report 12/08/2024

This report covers the period from Monday 12th August to Friday 16th August and was written by Dave Rabbich.

Coffee Market

Last week the NY C followed the overall 2024 trend of moving on up. Starting the week on 235.80 c/lb, it initially dropped to a weekly low of 230.10 c/lb on Monday, but then saw the next four days close consistently higher to finish out on 248.90 c/lb. This week’s upward momentum has largely been driven by dry weather concerns in Brazil and how it may cause premature flowering which would impact negatively on the 24/25 crop. Brazil’s largest cooperative Cooxupe, said that many of the key coffee regions in the country have not had meaningful rain in the last four months. From early August there has been a strengthening of the Brazilian Real against the USD, which discourages Brazilian farms from exporting. Bullish pressure is also being put on coffee prices by Vietnam’s reduced export volumes. From the start of 2024 until July they were down 12% year on year.

On the other side of the coin, the current harvest in Brazil is coming off the trees at a faster than average rate. The 5 year average at this time of year is 93% whereas we are hearing the estimated crop of 66 million bags is already 96% completed. This is bearish for prices.

The London Robusta market also saw four days of increases and closed out the week on 4,671 US$/MT, only just shy of the overall high.

COT & certified stocks

↓ Non-commercials decreased their net long by 921 lots to 38,960 lots.

↑ Commercials increased their net long by 5,429 lots to total 90,316 lots

↓ Arabica washed certified stock level: 836,921 bags

↑ Arabica pending grading: 25,509 bags

Origin

The Ugandan Coffee Development Authority (UCDA) have reported that the country coffee exports for July were 26% higher than the same month last year, at a total of 821,593 bags. The UCDA also announced that the exports for the first ten months of the current coffee year were just over 3% higher than the same period in the previous year. Moreover, the overall value of coffee exports has increased by just under 100% due to the higher market. Looking forward, the coming 2024/25 coffee year is expected to come in at a marginally higher production level than the current year, at a total 6.90 million bags. This crop is expected to be made up of 5.89 million bags of Robusta Coffee and 1.05 million bags of arabica Coffee. The USDA forecasts that Uganda will export 6.75 million of these bags.

Currency & Macro Outlook

The US Dollar Index has been at its lowest level since March 2024 at just over 102 and fell last week off the back of concerns about the US labour and housing markets. In combination with this, the S&P 500 recovered from early losses, reducing liquidity demand for the dollar. The FED is talking about confidence that inflation is under control so there will interest rates are likely to remain the same or decrease. Naturally, this has played well into the hands of the Pound, which climbed to 1.294 against the greenback.

In other interesting news, gold continues to hit all-time highs surrounded by escalating geopolitical risk, inflation hedging, and central bank buying. Its current September contract price is at 2,505.7 US$/ounce—quite a bit more than green coffee!

Coffee Market Report 12/08/2024

This report covers the period from Monday 5th August to Friday 9th August and was written by Hannah Wakefield.

Coffee Market

It was a rollercoaster of a week for the NYC. First shooting up, then crashing back down. Monday 5th August was a largely uneventful trading day, opening at 226 c/lb and closing just 1.70 c/lb lower. The following day, the bulls woke up, opening the market 3.40 c/lb higher than the previous day’s close and jogging on to reach highs of 236.5 c/lb before closing at 232.95 c/lb. However, compared to Wednesday’s market movement, this was merely a warm up, as come Wednesday the bulls really got running up that hill, hitting a high of 243.65 c/lb. This was driven largely by fears of frost, although it was widely considered an overreaction by the market.  

There have only been 6 frosts in August in Brazil since 1882, the last being in 1978 and since then the coffee growing regions in Brazil have spread significantly, thus minimizing the risk of frost in one location. Thursday began in the same vein, hitting the weekly high of 245.50 c/lb, before sense was seen and emotions tempered, closing the market at 239.35 c/lb. Friday saw similar movement, as concerns of frost cooled, so did market movement, with a negative range of 11.4 c/lb, before closing at 230.23 c/lb. 

Although frost fears were judged to be unfounded during this week, these fears were in fact realised over the weekend, but more on that in next week’s report! 

COT & certified stocks

↓ Non-commercials decreased their long by 4,195 lots to 50,339, leaving the net long shorter by 1,689 lots, at 39,881 lots. 

↑ Commercials increased their long by 445 lots to 77,326 lots, and decreased their short by 2,506 lots to 10,458. 

 Arabica washed certified stock level: 828,509 bags

 Arabica pending grading: 49,883 bags

Origin

In Brazil, beyond frost concerns, droughts in part of the Amazon are creating different problems. The droughts are drying up rivers in Manaus, and according to the National Water Agency of Brazil, the early analysis from the region suggest there will be navigability restrictions likely until early 2025.  Shipping and logistics companies are worried this may have a knock on impact on the port of Santos, which, as we know, the majority of coffee from Brazil is shipped from.  

At the start of August, Ethiopia shifted to a “market-based” foreign exchange system, loosening government control over the currency. This has seen the value of the Ethiopian Birr plummet. Before the shift 1 USD was worth roughly 57 ETB, as of today (12th August) you need almost 107 ETB to buy just 1 USD, meaning in just 2 weeks the Birr has devalued by almost 46%. As coffee is traded in USD, and in Ethiopia selling coffee is often used as a way to bring USD into the country, coffee prices have surged. The tea and coffee authorities in Ethiopia have also increased the minimum price by 2-3 c/lb. Further increases are expected, and therefore there is no immediate pressure to sell, meaning the domestic market has slowed significantly. On top of this container shortages are still a problem and causing delays in shipping. 

Currency & Macro Outlook

Whilst Sterling has proved itself to be the most resilient of the G10 currencies year-to-date, according to HSBC, there was some fluctuation over the reporting period. The high of the week was 1.282 against the US Dollar on Monday 2nd August, but it fell the following day to a low of 1.269, before closing out the week somewhere in the middle at 1.276.  This volatility is due to a range of factors. The BoE cutting interest rates for the first time since 2020 on 1st August, and they are expected to continue to do so, with HSBC Economics predicting another 25bp cut in November. The ongoing riots across the UK are also continuing to cause instability for GBP. 

In the wake of talks of the Fed cutting interest rates in the US, both presidential candidates have commented on how the decisions are, and perhaps should be, made. Trump has suggested that if he is reelected as president that he believes that he and the White House should have a say in interest rate decision-making, which would infringe upon the Federal Reserve’s independence. Unsurprisingly, Kamala Harris has assured the American population that she strongly disagrees with this opinion and has no such intention herself, pledging never to interfere with the Fed’s independence. Should Trump be reelected in November, his intention has the potential to impact USD strength considerably. 

Coffee Market Report 05/08/2024

This report covers the period from Monday 29th July to Friday 2nd August and was written by James Duncan. 

Coffee Market

This week saw a fairly stagnant week of market movement, with a gentle downward trend following the last three week’s momentum. Monday opened at 230.35 c/lb, dipped below the 230 barrier before closing just 1 point higher at 230.40 c/lb. The market flirted with the 230 support most of the week before finally closing out below on Thursday at 229.20 c/lb. Friday continued the downward trend in the AM, before rallying to a close at 230.50 c/lb – closing out the week a meagre 0.15 c/lb higher than week open. The rally on Friday has been attributed to the expectation of smaller global supplies of coffee and short covering.

COT & certified stocks

↓ Non-commercials further decreased their long position by 3,965 for a total of 41,570 net long. 

↑ Commercials increase their long position by 5,990 for a net short position of 87,970. 

↑ Certified stocks increased by 7,275 bags to a total of 930,094 bags. 

↑ Certified stocks pending grading increased by 10,888 to a total of 47,411 bags. 

Origin

American financial services company Stonex released their estimations for Brazilian coffee production for 24/25 harvest, decreasing their forecast by 1.7% vs previous (Feb-24) prediction. Despite this, they are still anticipating a 2.5% year-on-year increase for the third year in the row. Part of this can be attributed to the two-year harvest cycle of Arabica. 

The Honduras Coffee Institute (IHCAFE) reported on Friday that July ’24 exports were 11% lower year-on-year. As Central America’s largest coffee producer, all eyes are on IHCAFE as a gauge of the regions total production, and this news was at least in part to blame for Friday’s market rally. Costa Rican exports are also lower in this period, signalling a weaker year for Central American exports. 

Currency & Macro Outlook

The largest news this week came from Friday with the release of the July payroll report which showed lower than expected growth and unemployment rising to an almost 3-year high. The indications are that US economic growth are that a September interest rate cut by the Fed seems all but certain now. The dollar index sunk to a four and a half month low in the immediate aftermath of the reports.