Apr 12 / Laleska Moda

Coffee Weekly Report - 2024 04 12

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  • Brazilian coffee exports surged in March, reaching a total of 4.29 M bags and a new record for the month and for the first quarter, according to Cecafe.

  • The positive performance reflected an increase arabica and, specially in robusta/conilon exports, that also reached an all-time high of 846,700 bags in March. Increase in exports has also been contributing to local prices.

  • Higher Brazilian robusta/conilon figures had been expected after the significative drops in Vietnamese and Indonesian exports, but there are still concerns related to the global robusta balance, with prices for the variety remaining bullish.

  • Also, this week, the release of USA’s Consumer Price Index (CPI) figures of March disappointed the market, with the monthly Index coming in at 0.4% – higher than previously expected – potentially keeping the FED from further rate cuts in the coming months, and impacting coffee prices, both on the daily settlement and in the medium-term

Robusta deficit drives Brazil’s coffee exports

Brazil’s total coffee exports reached 4.29M 60-kg bags in March, a new record for the month (and for the first quarter) and an increase of 37.8% compared to the same period of 2023, according to Cecafe. The surge in the exports was supported due to both high arabica exports, at 3.1M bags (+15,1 y.y) and to record volumes of robusta/conilon, which reached 849,700 bags in the month, almost 8 times higher than in March/23.

Brazil’s shipments of the variety had already been rising in recent months, due to falling robusta exports from Vietnam and Indonesia, as production in both countries was lower in 23/24. In Vietnam, adverse weather affected the 22/23 crop, whilst in 23/24, growers reduced coffee acreage. In Indonesia, the reduction was mainly due to reduced rainfall in 23/24.

While the Brazilian beans are meeting the current demand for robusta, there are still concerns regarding the variety’s global 24/25 balance. Rainfall, particularly in Vietnam, has been scarce in recent months, leading to lower soil moisture in the Asian country and increasing concerns for 24/25 season development. This has also led to Vietnamese growers holding back sales, concerned about the impact of a potential drought on supply, maintaining upward pressure on robusta prices.

Figure 1: Green Arabica Exports (‘000 bags)

Source: Cecafe

Figure 2.Green Conilon/Robusta Exports (‘000 bags)

Source: Cecafe

It’s good to note that futures in London are already hitting record levels: on Friday (12th) the July robusta contract in London hit $3,890/ton during the day, approaching the highest levels since 2008. Arabica prices were also bullish this week, since higher robusta prices is leading to more of the former being used in blends.

Consequently, Brazil’s robusta harvest – due to start at the end of April – and the weather effects over the development of Vietnam's 24/25 crop will highly affect prices movement in the following weeks and will be watched closely by the market.

Aside from the supply side, this week's macroeconomic events are also worth mentioning, for their impact on prices both on the daily settlement and in the medium-term. On this Wednesday (10th), USA Inflation data surprised the market, as the CPI for March came in at 0.4%, above the 0.3% previously expected for the month. The Index was boosted by rising gas prices and higher mortgages and rents, which in turn could prevent further interest rate cuts by the FED, and possibly lead to added pressure in the commodities market.

Figure 3: Central Highlands (Vietnam) – Soil Moisture (0–1.6 m)

Source: Refinitiv

Figure 4: US Consumer Prices Index (% )

Source: US Bureau of Labor Statistics; Refinitiv

In Summary

Exports in Brazil reached a new record in March. Both arabica and robusta showed growth, but for the latter shipments reached a new record, mainly due to reduced exports from Vietnam and Indonesia.

 While in Indonesia the 23/24 crop was affected by unfavorable weather, in Vietnam growers reduced the coffee area planted in the season. However, low rainfall in recent months also raises the alarm for the 24/25 coffee season in both countries. This scenario has limited sales, particularly in Vietnam, supporting robusta prices. Arabica prices are also being driven by the robusta rally.

In the macroeconomic scenario, higher than expected CPI figures from the US may delay further interest rate cuts by the FED, which could put bearish pressure on the commodities market.

Weekly Report — Coffee

Written by Laleska Moda
laleska.moda@hedgepointglobal.com
Reviewed by Natália Gandolphi
natalia.gandolphi@hedgepointglobal.com
www.hedgepointglobal.com

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