After the strong advance at the beginning of July, the contracts for Arabica coffee in NY and Robusta coffee in LN have fallen again in recent days. The September arabica contract closed Friday (26) at 230,2 c/lb – after approaching the lowest levels in 3 weeks, at 227,5 c/lb – a drop of 3,4% compared to the previous week, while September Robusta ended the day at USD 4.322/mt, a decrease of 4,4% in the same comparison. The pressure came mainly due to the expectation of an increase in supply in the short term.
“In Vietnam, even with low transit stocks, differentials remain under pressure, given the increase in supply in Indonesia and lower buyer demand, which moved away from the market after the high prices at the beginning of July. The rainier weather in Vietnam has also increased expectations regarding a reduction in damage caused by the drought until April”, observes Laleska Moda, Coffee analyst at Hedgepoint Global Markets.
“It is worth noting, however, that the accumulated volume of precipitation was still below historical averages until June, and part of the productive potential may have been compromised. Our models still point to lower production in 24/25, close to 27 M bags, which should contribute to the deficit in the season”, he says.
Still, in the short term, the peak harvest of the 24/25 season in Indonesia has increased the volume of Robusta on the market, with local differentials receding in recent days, with offers ranging from USD 520/mt to USD 600/mt against the September contract. The perspective is that this momentary increase in supply will put downward pressure on the market in the coming weeks.
Still according to Laleska, in addition to Southeast Asia, in Brazil, the advance of the harvest also brought producers to the market in recent days, especially with the recent devaluation of the Real.
“The coffee harvest for the 24/25 harvest had already reached 81% by the last week, surpassing the 77% average of the last five harvests for the period and the 74% reached in the same period of 23/24. The Arabica harvest was estimated at 75%, above the five-year average of 69%, while the conilon harvest is already in the final stretch, at 95%, also above the average of 93%”, he highlights.
Furthermore, preliminary data from Cecafé indicates that Brazilian coffee shipments in July are approaching record levels for the month, which also reinforced the bearish scenario of recent days. On the other hand, many agents remain concerned about logistical problems at the port of Santos, which has led to a certain delay in shipments.
“It is also worth remembering that, despite the increase in supply in the short term, the general scenario for 24/25 is still one of global deficit. The forecast is that the increased production of Arabica coffee estimated this season will not be enough to alleviate the decline in Robusta. Therefore, our expectations are still supportive for Arabica and Robusta coffee prices in the medium term,” he says.
“Finally, in the macroeconomic scenario, data released by the United States government this week indicate that GDP in the 2nd quarter of 2024 grew above expectations, at 2,8% (vs 2,0% predicted by the market). Data from the PCE price index also points to a slowdown, which should maintain a possible scenario of interest rate cuts by the FED in September”, he concludes.
In short, the coffee market has seen a decline in recent days, both for Arabica and Robusta. The downward pressure came from the prospect of an increase in supply in the short term, with the peak of the harvest in Indonesia and a greater presence of sellers in Brazil, given the approaching end of the 24/25 harvest and the recent devaluation of the Real. Furthermore, good rains in Vietnam in July and a possible record shipments from Brazil also added to the bears.
In the macroeconomic scenario, data from a stronger American economy maintains the prospects for an interest rate cut by the FED in September, which could also affect the commodities scenario.
However, it is worth remembering that this more bearish scenario in the coffee market could be reversed in the coming months. In Vietnam, even with recent rains, the outlook is that adverse weather in early 2024 will still lead to lower production in 24/25. In Brazil, we also revised our numbers downwards (albeit marginally), due to the lower yield in grain processing. Therefore, Arabica production in 24/25 will probably not be enough to cover the Robusta drop, resulting in a 4th consecutive year of global deficit, which could support prices in the medium term.
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