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 30/09/2024
This report covers the period from Monday 23rd September to Friday 27th September and was written by Phil Searle
Coffee Market
The coffee market saw a familiar pattern last week—continued volatility. Prices steadily climbed from Monday through Thursday, despite the absence of any significant positive news. Once again, the spotlight remained on the weather in Brazil. The pressing question on everyone’s mind: When will the rain come? Weather in Brazil continues to dominate market sentiment, with the European model forecasting a dry southeast for the next 10 days. Meanwhile, the GFS (Global Forecast System) suggests light rains may arrive towards the end of the month.
Speculators continue to be the primary market drivers, trading on daily weather updates and reacting swiftly to any news regarding Brazilian rainfall.
Adding to market uncertainty, the European Union has confirmed it will not delay the EUDR timeline. With only three months remaining to ship coffee, there are concerns about whether coffee stuck at ports will reach its European destinations on time.
Additionally, the Exchange has adjusted its margin requirements, raising the initial margin by $552 to $6,675. This increase may limit participation in the market, potentially reducing the number of active players.
COT & certified stocks
↓ Compared to last week Non-Commericals reduced their net position from 43,600 to 41,649 (-1,951)
↑ Commercials added 201 lots to a net short of -99,113 lots.
↓ Arabica Certified Stock level: 818,183 bags
↑ Arabica pending grading: 51,731 bags
↓ Robusta Certified Stock level: 4,867
Origin
Positive crop development in Kenya has been observed as a result of a mix of sunshine and scattered rains, contributing to healthy tree growth as the main crop continues to ripen. Despite the favourable weather, demand remains slow and prices are holding steady for now.
Parchment coffee in Tanzania is now reaching dry mills, which are operating at full capacity. Processing is moving along efficiently, likely driven by European importers eager to get ahead of the looming EUDR regulations.
In August, Uganda shipped 830,000 bags of coffee—a 13% year-on-year increase. Robusta exports surged, though Arabica volumes declined due to the lower crop, following the biennial off-year cycle.
Currency & Macro Outlook
Sterling surged to a two-and-a-half-year high against the US dollar, reaching 1.34. The pound was buoyed by rising equities and supportive monetary policies from the Bank of England. This is welcome news for coffee roasters, as the stronger pound should help offset some of the increases in market prices.
While UK data continues to show solid growth, the Eurozone is facing headwinds, with recent data releases further weakening the Euro.
Coffee Market Report 23/09/2024
This report covers the period from Monday 9th September to Friday 13th September and was written by Jack Ravenscroft
Coffee Market
Arabica coffee futures started the week where they left off last Friday and quickly built on that strength. The NY market gained 11.35 points in the opening 4 hours of trading, reaching a 13-year high of 271.80 cts/lb. Continued high temperatures and lack of rain in Brazil seemed to drive this bull run as the market tested the high again before falling short at 271.55 cts/lb. As the day progressed, the publication of the Open Interest showed an addition of ~ 5,000 lots adding new longs to the market. This, combined with revised forecasts for rain in Minas Gerais in the medium term, saw the market slowly give back all gains for the day, closing at at 258.55 cts/lb.
In a historical context, daily oscillations of over 10 points would be considered abnormal. However, such volatility seems to have become the norm with continuous weather speculation in Brazil. Tuesday through Thursday presented good evidence of the funds trying to drive the market higher. On consecutive days the NYC retreated in the morning session before reversing as markets opened on the East coast.
The highs of Monday were juxtaposed by Friday’s bear run. News of Thursday night rains in the South of Minas sparked a liquidation that took some of the weather premium out of the market. Should this rainfall spark flowering, it is critical that more rain follows to ensure good development. Forecasts to this effect look by no means certain. Despite this, NYC reached a weekly low of 247.70 cts/lb before closing the week 5.85 points down from Monday’s open at 251.9 cts/lb.
Any market low continues to be supported by high robusta prices and impending EUDR implementation. The volume bought by the EU before the law’s implementation has been higher than historical norms. However, news that the President of the European Commission, Ursula von der Leyen, is expected to propose a postponement or other ‘temporary solution’ to regulation next week may well move the needle.
COT & certified stocks
↑ Non-commercials added 4,546 to 43,630
↑ Commercials added 5,405 to a net short of -99,314
↓ Arabica washed certified stock level fallen 20,713 to 837,761 bags
Origin
Following on from last weeks’ report by Guus Bremmer, we thought it important to revisit his question… “From Jan 2024 to Aug 2024, Brazil exported a record 31.9 million bags, a 40% increase compared to last year. But if not to the roaster’s silos, where is that all going?”
The following chart from ICE shows considerable increased import volumes from coffee-producing origins. Mexico, Vietnam, and India, three of the largest soluble coffee manufacturers in the world, have increased their Brazil imports by an average of 733% YOY. What other conclusions can you draw from this data?
Currency & Macro Outlook
The USD plunged on Wednesday evening as the Fed lowered rates, opting for a larger half point cut. While the aftermath of the Federal Reserve’s 50 bps interest rate cut initially kept the US dollar subdued on Thursday and Friday, USD was eventually able to recoup some losses. Escalating tensions in the Middle East rattled global markets thereby boosting demand for the safe-haven ‘greenback’.
GBP enjoyed some support at the end of the week following the BoE decision not to cut interest rates at its September policy meeting. This was further buoyed by UK sales figures beating expectations by 0.6%.
Coffee Market Report 16/09/2024
This report covers the period from Monday 9th September to Friday 13th September and was written by Guus Bremer
Coffee Market
On Monday, the front month, Arabica opened at 238.10 c/lb. After the prior sell-off on Friday, September 6th, buyers took the opportunity to cover shorts. This was accelerated by GTC stops triggering at 240-level bases on December 24.
Throughout the week, the December/March spread rallied by 1 cent, potentially related to pressure in the spot market due to delayed deliveries (e.g., logistical issues in the port of Santos). On Thursday, the settlement already closed higher at 249.40. Finally, on Friday, weather concerns—particularly extreme high-temperature predictions in Brazil’s coffee producing areas induced another intraday increase of 10 c/lb, reaching a peak of 260.45!
Even though the new crop is well underway, roasters are still historically low on coverage (physical) and might soon have to bite the bullet on their open hedges (futures).
COT & Certified Stocks
– Compared last week, the non-commercials maintained a similar net long position and closed 39,084 lots as of COT 10/sep (-17).
– Commercials added 1,215 lots to a net short of -93,909 lots.
– Arabica washed certified stock level: 858,474 bags.
– Arabica pending grading: 42,871 bags.
– Transition stocks: 746,769 bags.
– Robusta certified stock level: 6,010 bags.
Origin
This year, from Jan’24 to Aug’24, Brazil exported a record 31.9 million bags, nearly a 40% increase compared to last year. But if not to the roaster’s silos, where is that all going? Some speculations indicate that large trade houses are accelerating their shipments to Europe ahead of the new EUDR regulations that will come into play as of 31st Dec 2024, after which all imported coffee has to be traceable to the farm level.
These export figures might drastically drop for the next 2025/26 harvest since the coffee trees haven’t received rain for over five months. They need moisture replenishment and rain ideally within the next few weeks to trigger a decent flowering and hopefully adverse to the drought damage already done. This week, some rain may reach the coffee regions of Mogiana, South Minas, Cerrado and Zona da Mata. We can only hope it will be enough, and trees won’t start waiving white flags, but rather white flowers and that they are strong enough to sustain the fruit on the branches and let them develop for the next crop!
In Vietnam, the same persistent drought has skyrocketed robusta pricing. Although the outlook for the upcoming crop—starting in November—was much brighter, on Monday, September 10th, typhoon Yaghi threw a spanner in the works and might have further damaged robusta yields.
Currency & Macro Outlook
On Thursday, German Chancellor Scholz asked the European Union to suspend the new EU Deforestation law and urged the rules to be more practicable for both coffee farmers and importers/roasters. This is right after similar objections were voiced by nations like Brazil, Indonesia, and Malaysia, raising concerns about serious negative impacts across global commodities markets.
Both EUR (closed the week at 1.108) and GBP (closed the week at 1.185) performed stronger against the USD, which is understandable amid the expectations for a swift easing cycle by the US Fed interest rates.
