Rains in Brazil put pressure on coffee prices in October

Hedgepoint assesses that future prices for Arabica and Robusta coffees have fallen compared to September levels

30.10.2024 | 11:55 (UTC -3)
Luciana Minami

Hedgepoint Global Markets analyzes the factors that are leading to downward pressure on coffee prices in the international market. “Although volatility remains high, the second half of October has been marked by a decline in coffee futures prices. Some factors have contributed to this downward scenario, such as the return of rains in Brazil, the approach of the 24/25 Vietnamese harvest and the possible advancement of the EUDR,” highlights Laleska Moda, Coffee analyst at Hedgepoint.

“On the other hand, we still expect these factors to contribute to downward pressure in the short term, we cannot forget that some support remains in the market”, he notes.

In Brazil, in fact, the accumulated rainfall in October (especially after the second half) is already higher than in the last two years and is approaching the historical averages for the period and has been a positive factor for the next coffee season, especially with new flowering occurring in the Arabica regions this month.

“The expectation is that we will have a better recovery of the coffee plantations and a better setting of the flowers if the rainfall remains more constant in the coming weeks, which should contribute to the 25/26 season”, says the analyst.

However, it should not be forgotten that, for most of 2023 and 2024, accumulated monthly rainfall remained below the historical series (with average temperatures also somewhat above average).

“This adverse weather scenario contributed to lower production in 24/25 and may have compromised part of the production potential for 25/26, maintaining the scenario of great uncertainty regarding Brazilian supply next year and increasing market volatility in the coming months,” he believes.

On the other hand, in the short term there is an expectation of an increase in supply in Vietnam, with the intensification of the 24/25 harvest in the coming weeks – although our expectations for this season are of a lower coffee production compared to 23/24.

“It is worth noting that domestic prices in Vietnam have been falling in recent weeks and sales have remained slow, with demand weakening in the country as buyers wait for new season grains to enter the market,” he says.

Combined with the higher Vietnamese volume expected in the market in the coming months, the strong possibility of the EUDR being brought forward to December 2025 has also triggered bears in the market. After approval by the Council in the middle of this month, now only the approval of Parliament is needed for the advance request to be implemented.

“Although Parliament’s decision may only occur between the second half and the end of November, it is expected that the advancement of the legislation will lead to a drop in demand in the coming weeks,” he highlights.

This is because European importers and companies have accelerated their purchases in recent months, trying to get coffee into the EU before December, in anticipation of the EUDR, which will possibly result in an increase in the bloc's stocks until the end of 2024.

European import data up to September this year already point to a recovery in the volume of coffee brought to the bloc in relation to previous years, with accumulated imports of 36,6 million bags of green coffee up to the previous month.

“Therefore, without the pressure of the EUDR and with higher European stocks, we may see a slowdown in EU demand in the short term. Given that the European Union is the world’s largest coffee importer, weaker demand could add to the downward pressure on the market,” he ponders.

“However, as previously mentioned, there are still points of support for the market in the medium to long term. In addition to the risks related to the 25/26 harvest in Brazil, with the lowest production recorded in the country in 24/25 and a smaller harvest in Vietnam in 24/25, we expect the current crop year to record a deficit in the global coffee balance,” he points out.

On the other hand, although stronger imports from several consumer countries in 2024 may lead to a recovery in stocks, in general this volume will still be lower than in previous cycles, and a reduction in stock levels at origins is also expected by the end of the season.

“Therefore, while in the short term we may have a more bearish scenario, our expectation over the course of 24/25 is still a certain support for prices, especially after the end of the harvest in Southeast Asia and during the Brazilian off-season”, he concludes.

In summary, in general, Arabica and Robusta coffee futures have been falling during October, pressured especially by the return of rains in Brazil, which may help production in 25/26. In addition, the approach of the 24/25 harvest in Vietnam and the possible advancement of the EUDR may add to the market decline, both due to an increase in the supply of Robusta in the coming months and a possible reduction in European demand, given that coffee imports to the bloc were boosted in 2024 due to the regulation, which may contribute to a recovery in stocks.

However, throughout the current season, we may still see support for the prices of the grain. Expectations for 24/25 are still for a global coffee deficit, reflecting lower production in Brazil and Vietnam. In addition, stocks at origins and even destinations may still remain below historical averages, even if they show a slight recovery in consuming countries.

Another point of attention in the market that could increase volatility in the coming months is Brazil's 25/26 season. Although rainfall in October should indeed help in the recovery of crops and flowering, the weather until September was adverse and could still translate into a loss of production potential in the following harvest.

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