May 3 / Natália Gandolphi

Coffee Weekly Report - 2024 05 03

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  • Coffee prices continued their decline this week, mirroring trends in other soft commodities like sugar and cocoa. Prices have been more driven by speculative moves rather than changes in market fundamentals, with coffee prices down around 15% from previous highs, positioning them between the decreases seen in sugar and cocoa. Linear regression analysis suggests prices could settle around the 202-209 c/lb mark, all else equal.

  • The market continues to monitor developments in Vietnam, where forecasts for increased rainfall have not yet translated into recovery. Current weather concerns include lower-than-expected rainfall and higher-than-normal temperatures, which may affect the development of the 2024/25 crop.

  • Meanwhile, coffee roasters have experienced a slight slowdown in the first quarter, particularly for in-home consumption. For example, KDP reported a 0.3% decrease in U.S. coffee volume sales in Q1 2024, with a 1% drop from last year, suggesting slight shifts in demand patterns.

Coffee prices align with softs’ trend

This week, coffee prices remained on the downtrend, alongside other softs commodities. Prices have also mirrored other benchmarks, such as oil: front-month WTI prices fell by roughly 8% since mid-April, and while coffee responded more aggressively (about -15%), it stayed in the middle of the road between sugar and cocoa (roughly -10%, and -30%, respectively, considering the previous highs).

So far, price decreases have been more correlated to spec moves than fundamentals themselves. For instance, in our monthly analysis, we’ve been observing the vulnerability implicit to record-high spec positions (Figure 1). It is important to note, however, that going by the correlation between prices and spec position, there was more room for correction, towards 202-209 c/lb, considering a linear regression for the past 70 periods, since January 2023 and the 5-year series – the level that the first contract is currently testing (Figure 2).

Other points have also been watched by the market, despite not currently altering the global Supply & Demand balance: results from coffee roasters showed a slowdown in the first quarter, especially for results that reflect more in-home consumption. KDP, for instance, posted a -0.3% variation in U.S. coffee volume sales in 1Q/24, and a 1% drop compared to the same period last year.

Figure 1: Arabica Net Spec Position (‘000 lots)

Source: CFTC

Figure 2: Arabica Net Spec Position and NY Arabica Prices

Source: CFTC, Refinitiv, ICE

Nonetheless, as previously mentioned, the correction does not reflect the fundamentals that were being watched more closely by the market and providing support – especially to LN robusta prices. Namely, concerns regarding the early stages of development in Vietnam.

Even though forecasts continue to suggest an increase in rainfall levels over the next weeks – with 2-week forecasts suggesting from 90% to 150% of normal volumes, compared to the current 0% to 20% - these forecasts are yet to effectively translate into a recovery. Figure 4 shows the cumulative rainfall levels for 2024 in the Central Highlands region, accompanied by the EC and GFS forecasts.

In tandem, temperatures are yet to come back down from historical highs: according to Refinitiv data, the region reported temperatures at 29.9°C in the past few days, while the average expected for the period would be around 25°C. In this sense, it’s not just irregular rainfall patterns that threaten soil moisture at this point, and consequently, the development of the 24/25 crop.

Figure 3: Average Temperature – Central Highlands (°C)

Source: Refinitiv

Figure 4: Cumulative Precipitation – Central Highlands (mm)

Source: Refinitiv

In Summary

Coffee prices continued to decline this week, in line with other soft commodities like sugar and cocoa. The drop in coffee prices seems more related to speculative moves rather than fundamental market factors. There was potential for further price correction based on a linear regression analysis, aiming for around 202-209 c/lb, but now, it is the level being currently tested. Despite some positive outlooks for increased rainfall in Vietnam, forecasts haven’t yet led to a clear recovery, as the region experiences higher-than-average temperatures. Additionally, coffee roasters showed a slight slowdown in the first quarter, with a focus for in-home consumption patterns – although results aren’t resonating throughout all categories, which limits the bearish pressure.

Weekly Report — Coffee

Written by Natália Gandolphi
Reviewed by Laleska Moda


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