Apr 28 / Laleska Moda

Prices rise with lower Arabica crop in Brazil and news on demand

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  • Coffee prices fell in April after the “Liberation Day” and the ongoing fears of a trade war. However, recently, both Arabica and Robusta futures prices have surged, driven by perspectives of a smaller Arabica cycle in Brazil for the 25/26 season. Arabica’s July/25 contract hit a 7-week high this Monday (28), at 410.05 c/lb, while Robusta’s July traded above 5.400 USD/mt.

  • The market indicated not only the potential challenges related to Arabica supply but also responded to some optimistic news regarding demand, as one of the largest industries in the sector announced on Thursday (24) that, the price increases implemented in coffee categories had “limited customer disruption”. The company also announced an investment in a new coffee facility in Vietnam on the same day, highlighting the resilience in the sector.

  • Our model still indicates a drop in demand in 24/25 cycle, due to higher prices (Arabica and Robusta), and a marginal decrease in 25/26. However, even with the expected drop, global balance points to a deficit, indicating that the tight supply could continue.

  • Last Friday CFTC and ICE funds reports also showed an interesting turn, with speculative funds positions raising long positions.

Prices rise with lower Arabica crop in Brazil and news on demand

While we head to the 25/26 Brazilian harvest – with many Conilon farms already starting the field work – we would expect a further bearish pressure on prices, especially with the current macroeconomic uncertainties. However, coffee future prices soared last week, partially reflecting the worries over a smaller Arabica crop in Brazil.

Many houses in the market reviewed down their Arabica figures in the last few days – us included! We lowered our production expectation of the variety from 42.6M bags to 39.6M bags (see the complete report). While our Conilon/Robusta forecast was revised up (from 22.5M bags to 24.2M bags), this does not completely offset the Arabica supply tightness. This gave support to coffee future prices, as, even with an increase in Conilon production, the Arabica drop can contribute to another cycle of limited supplies. In this sense, Arabica July/25 contract hit a 7-week high this Monday (28), at 410.05 c/lb, while Robusta’s July traded above the 5.400 USD/mt. While Robusta prices corrected this Monday, they remain above mid-April levels.

However, the bullish trend in the market was not solely attributed to supply forecasts. Last Thursday (24), one of the biggest companies in the coffee sector indicated in a report that the price increases implemented in coffee and cocoa-related categories had “limited customer disruption”, with better-than-expected first-quarter organic sales growth. The company also points out that it expects more positive results ahead, giving some new perspectives on the demand side.

An important institution also commented on Friday that “The price increases for coffee and cocoa do not yet appear to have had any significant impact on demand”, although it warned that the market should keep cautious about the impact of higher prices on demand. Our models indeed indicate a sligth increase in Arabica demand in 24/25 – mainly reflecting the rise in Robusta prices in 2024 – but points to a decrease in 25/26, as arbitrage levels are now favoring a Robusta demand.

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

Source: Refinitiv

Global Coffee Balance (M bags)

Source: Hedgepoint

The drop in Robusta demand in 24/25 – especially in origins – and the expected Arabica drop in 25/26 indicates a decrease in global demand in 24/25 and a marginal drop in 25/26. On the other hand, with limited production in both cycles, this would still mean a tight supply in the coming months, which could give support to prices throughout the seasons, as we are already seeing in the current market.

On another note, an interesting development is occurring with the speculative fund positions of Arabica and Robusta. Since early 2025, both ICE and CFTC funds have reduced their long positions, likely in response to rising hedge costs and expectations of a decline in coffee demand. However, in the most recent report, they have once again increased their long positions. While it's crucial to monitor future movements, this may suggest that speculative funds are detecting a shift in the market given the expectation of tight supplies ahead, potentially indicating a support for prices at the current levels.

Arabica: CFTC Speculative Fund Positions (lots)

Source: CFTC

Robusta: ICE Speculative Fund Positions (lots)

Source: ICE

In Summary

Coffee future prices had some gains last week, as agents of the market reviewed their Brazilian 25/26 crop figures. Many decreased their estimates on the Arabica production – Hedgepoint included – reinforcing the view of the continuation of a tight supply scenario ahead. Besides the ongoing supply contains, one of the largest coffee industries in the world shared positive news on demand last week. The company stated an increase in organic sales, as the “price increases implemented in coffee categories had limited customer disruption”. In the same week, the same company also announced investments in a new coffee facility in Vietnam, highlighting the resilience in the sector.

Our global balance model still indicates a drop in demand in 24/25, due to higher prices, but almost stable consumption in 25/26. However, with the current production levels, this would still mean a deficit in 24/25 and 25/26 (albeit marginal) indicating a delicate balance in the coming months., which could translate in support for prices in the medium-term.

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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