Jun 21 / Laleska Moda

Coffee Weekly Report - 2024 06 21

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  • Arabica and robusta contracts have remained volatile in recent days as they await further definition of global production for the 24/25 crop.

  • In Brazil, the harvest has gathered pace in recent weeks and is already 44% complete, according to Safras & Mercado. However, expectations for production remain mixed as screens and yield problems continue to be reported.

  • On the robusta side, although the rains have returned to Vietnam, there are still concerns about the impact of the drier weather until May on 24/25 production.

  • Nevertheless, the figures published by the USDA this week point to an increase in world production in 24/25 to 176.23 M bags, which would help to rebuild stocks after a tighter supply picture in 23/24 (169.18 M bags).

  • On the demand side, the division lowered its estimates for 23/24 to 167.54 M bags, mainly due to revisions in the EU and US data, but expects a recovery in 24/25, with world consumption reaching 170.63 M bags.

Market remains volatile in anticipation of the 24/25 season

The coffee market has been volatile in recent days as it awaits news on global production. In Brazil, the June harvest has been progressing rapidly, and until this week, data from Safras & Mercado indicated that 44% of the country's crop had been harvested. Despite the progress, concerns have been reported about lower sceens and yield for both Arabica and conilon, with growing doubts about the impact of these problems on Brazilian production.

In Vietnam, the market is also cautious about the potential impact of the weather on the country's 24/25 production. Although rainfall returned in May, levels are still below historical averages, and it is too early to rule out a possible drop in productivity compared to 23/24. In Central America, the hot and dry weather of recent weeks could also affect the development of the 24/25 season.

This scenario of a possible limited supply in a new cycle has also caused LN and NY futures to return to April levels.

Figure 1: Arabica Harvest – Brazil – Historical (% of total)

Source: Safras & Mercado

Figure 2: Conilon Harvest – Brazil – Historical (% of total)

Source: Safras & Mercado

This week, the USDA also updated its global crop figures: in June, the figures for 23/24 and 24/25 were revised downwards from the preliminary report, due to adjustments made in Central America following the effects of El Niño in the region. However, the department still points to a strong increase in world production in 24/25, to 176.23 M bags, compared with 169.18 M bags in 23/24.

Although production is generally expected to recover in 24/25, most market participants believe that the increase will be small. For example, our estimates for the main producing countries are for an increase of just over 1 M bags in this next cycle, with room for adjustment depending on the weather in the coming months.

On the demand side, the USDA figures point to a negative revision between the preliminary figures for 23/24, with world demand for the season coming in at 167.54 M bags (compared to 170.22 M bags in the dec/23 report), weighed down by the correction in the figures for Europe and the US in particular. For 24/25, the department indicated a recovery to 170.63 million bags. However, with the higher production forecast for 24/25, estimates point to a recovery in ending stocks (25.78 M bags compared to 23.93 M bags in 23/24).

Figure 3: Production by Country - USDA – Preliminary vs. Consolidated (M bags)

Source: USDA, Hedgepoint

Figure 4: Production by Country - Hedgepoint (M bags)

Source: Hedgepoint

In Summary

The coffee market is awaiting further news on production for 24/25. This week's USDA figures point to a tighter scenario in 23/24, but a recovery in 24/25, which would lead to a more bearish scenario.

However, initial perceptions still point to a tight market in the coming months. In Brazil, production should pick up in 24/25, but we could still see slight corrections due to yield problems. In Asia, there are still doubts about the impact of the weather in 2023 and early 2024 on 24/25 production, especially in Vietnam.

Weather in Central America is also likely to be in focus in the coming weeks, with low rainfall and high temperatures until early June. As a result, the market is likely to remain volatile in the short term, pending further definition of supply.

Weekly Report — Coffee

Written by Laleska Moda


Reviewed by Natália Gandolphi


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