Mar 14 / Laleska Moda

Futures remain below 400 c/lb, as concerns over demand extend

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  • After reaching 410 c/lb in the first week of March, Arabica coffee futures have retreated to 370 and 390 c/lb levels in recent days.

  • While uncertainty remains over the true impact of the drier weather in February and early March in 25/26 crop, the forecast for rain in Brazil in the second fortnight of March, coupled with growing fears over the impact on demand this year, has pressured down prices.

  • The price hike of recent months is already being felt by consumers around the world and could still have a negative impact on coffee consumption. According to this week's FAO report, it may take months or even years for the price increases to be fully passed on to consumers.

  • The main consumer price index in countries such as the US, Brazil, and members of the European Union point to a rise in coffee prices, particularly between the end of 2024 and 2025.

  • Many traders and roasters have decided to make minimal purchases, only buying what they need to meet their commitments. However, the global balance still shows a deficit for the next crop, which could provide some support for prices in the long term.

Futures remain below 400 c/lb, as concerns over demand extend

Arabica coffee futures are once again trading below the 400 c/lb level after rising in early March. The May 25 contract has remained volatile in recent days, trading between 370 and 390 c/lb. Robusta futures have also followed the Arabica trend in recent days. The movement has also followed the liquidation of speculative funds' long positions.

While the negative impact of the weather in Brazil in recent weeks cannot be dismissed, the expected return of rains in the second half of March has helped to ease the pressure. However, the main factor weighing on the market now is the potential fall in demand. Coffee prices have been at high levels since 2021, due to the impact of the frost in Brazil and the pandemic but have taken a sharp turn between 2024 and 2025.

NY Arabica, Arbitrage (c/lb), and LN Robusta (USD/mt)

Source: Refinitiv

CFTC: Speculative Funds’ Position (lots)

Source: CFTC

The spike in futures prices since December, particularly for Arabica, and the increase in hedging costs have been passed on to consumers more strongly since the end of 2024, with many of the largest companies in the sector signaling a further increase in selling prices in 2025. According to a report published this week by the FAO (Food and Agriculture Organization of the United Nations), the current price shock could take months to years to be passed on to consumers. In Europe, for example, the organization expects prices to be passed on to consumers over 11 months, while in the US it will take around 8 months.


An analysis of consumer price indexes in major coffee markets confirms this trend. In Europe, for example, the Harmonized Index of Consumer Prices (HICP) for coffee - also used as an indicator of inflation and price stability - has reached its highest level in years in the eurozone and major economies such as Germany, France and, Italy. Meanwhile, in the United States, after a sharp increase between 2021 and 2022, the Consumer Price Index (CPI) for coffee also rose at the end of 2024, reflecting the sharp rise in prices.

Europe: Hamonised Index of Conumer Prices (HICP) for Coffee

Source: Eurostat

USA: Consumer Price Index (CPI) for Coffee

Source: Bureau of Labor Statistics

In Brazil, INPC (National Consumer Price Index) data for January show that the coffee cost for the Brazilian population has increased over the past 12 months, as the product's share in the index has risen. Even with the increase in the minimum wage, consumers are already noticing an increase in the proportion of their income spent on coffee. The ABIC price, which represents the average retail price of roasted and ground coffee (R$/kg), has risen significantly since August, but reached its highest nominal value in January at R$56.07/kg, although further adjustments are likely.

Brazil: INPC variation and Roasted Coffee Weight on the Index (%)

Source: IBGE

Brazil: ABIC Price (BRL/kg) and Reason with Minimum Wage (%)

Source: ABIC, IPEA

This picture has reinforced the view that, despite coffee's relative inelasticity to date, we could see a negative impact on demand in the coming months. For example, many traders and roasters have been operating with minimal purchases just to meet their obligations, which has added to the perception of an impact on demand. It's interesting to note that the retail sector has also been reluctant to absorb the price increase.

Given the picture of higher prices in recent months, we currently expect a small 0.9% decline in global coffee demand in 24/25. For 25/26, our initial estimates point to a decline of only 0.1%, although we should revise the figures in the coming months. Nevertheless, the overall picture still points to a deficit in the next crop, which could still support prices in the long term.

Global Coffee Balance (M bags)

Source: Hedgepoint

In Summary

Forecasts of rain in Brazil's main coffee-growing regions and fears of lower demand this year have kept Arabica futures prices below 400 c/lb in recent days. The sharp rise in coffee prices in the past few months has already been partially passed on to consumers, as indicated by consumer price indexes in major markets such as Europe, the US, and Brazil, but the price repass could continue for months or even years, as indicated by the FAO, increasing the perception of the impact on demand.

Considering the increase not only in 2025 but also in 2024, our models already indicate a decline in global coffee demand in the 24/25 season, while we initially expect some stability in the 25/26 season. However, even if our demand estimates are revised in the coming months, the problems on the production side will not be solved in the short term, with a new deficit expected in the next cycle, which could still provide some support for coffee prices in the long term, although prices could still undergo a correction if demand really does fall.

Weekly Report — Coffee

Written by Laleska Moda

laleska.moda@hedgepointglobal.com

Reviewed by Carolina França
carolina.franca@hedgepointglobal.com
www.hedgepointglobal.com

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