Coffee market remains concerned about the short term, says Hedgepoint

Despite some negative variations over the last few weeks, the coffee market remains bullish, with both Arabica and Robusta futures trading at historic levels.

According to Laleska Moda, Coffee analyst at Hedgepoint Global Markets, “an interesting point is that, when we evaluate the behavior of spreads between the futures contacts of the varieties, it is clear that the most valued are the first maturities, evidencing a greater concern with coverage in the short term”.

In fact, other technical market factors also point to this trend. On Friday (27), although the Arabica and Robusta speculative funds liquidated part of their long positions, they still remain long, indicating that these agents also continue to price in a rise in the market. Both the funds and the spreads.

“The market continues to be supported by the weather in Brazil. Despite occasional rains throughout September, rainfall remained below historical averages in the month while soil moisture levels remain below historical minimums, reflecting the most severe drought in 2024,”

“In addition, the volume of rain in recent days was sufficient to induce a new flowering in several regions, while forecasts still point to stable and warm weather in the coming days, increasing the risk of a negative effect on 25/26. Expectations are that the rains will return more significantly at the end of the first half of October, which should bring some relief, but may not be enough to abort part of the flowering that has already occurred,” notes the analyst.

It is worth remembering that the adverse weather of the last few months has already had an impact on the Brazilian 24/25 season, leading us to revise our figures downwards in August, to 63 million bags. In addition, the drought and high temperatures in Vietnam in the first half of the year also maintain our expectations of a smaller crop in the country in 24/25 – which should be harvested in the coming weeks.

“Therefore, in 24/25 we project a new global coffee deficit, this being the 4th consecutive year of a negative balance”, he highlights.

“This scenario should also be reflected in the continuation of limited grain stocks, both at origins and destinations – in a previous analysis we already indicated our expectation of limited stocks”, he points out.

It is worth noting that in September, ICE certified stocks also fell again, after a brief recovery in August.

In the case of robusta, certified stocks even fell from the historic lows reached last year, probably reflecting the still-heated demand for the variety amid low stocks in Southeast Asia.

“Although Brazil’s conilon exports are growing amid this scenario, the country’s shipments may not be enough to fill the gap left by Vietnam, keeping the market sensitive to supply,” he concludes.

In summary, the coffee market continues its upward trend, as the outlook still brings concerns about supply in the short to medium term, which has also been reflected in the structure of the futures market.

The adverse weather conditions of 2023 and 2024 have not only led to a lower Brazilian harvest, but may also impact the crop to be harvested in Vietnam this year, resulting not only in lower stocks, but also in the possibility of another global coffee deficit.

Now in the second half of 2024, the dry and hot weather may still bring negative impacts to the 25/26 season in Brazil, maintaining high volatility in the market, since any impact on the next season will add to supply risk, supporting prices and increasing uncertainty for producers and buyers.