Jul 5 / Laleska Moda

Coffee Weekly Report - 2024 07 05

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  • The Brazilian 24/25 coffee harvest has already reached 58%, ahead of the five-year average for the first week of July.

  • As of last week, arabica’s harvest had already reached 50% of the total, while robusta crop progress was estimated at 76%. The pace of both varieties is already above last year’s levels for this period and are higher than the five-year average.

  • However, as the harvest progresses, Brazilian domestic prices are also rising, which is not such a common move as we would normally see selling pressure at this time.

  • While NY and LN prices did have some correction from April’s peak, domestic prices in Brazil are reaching new records. June’s monthly average of the Cepea/Esalq robusta Indicator reached BRL 1.214,24/bag, a new record-high. The average price of the Arabica Indicator in June also reached its highest level since February 2022.

  • The uncertainty of the supply in 24/25, especially on the robusta side, continues to be the main support for prices. The expectation of another season of tight supply is also leading producers to hold their beans, boosting domestic prices in Brazil.

Brazil's 24/25 harvest reaches 58%, yet domestic prices continue to reach higher levels

This Friday, Safras & Mercado’s report showed that the 24/25 coffee harvest had already reached 58% in the first week of July, surpassing the 54% average levels of the last five seasons for the period. Arabica’s harvest was estimated at 50%, above the five-year average of 45%, while robusta’s crop progress reached 76%, also higher than the 73% average. Dry weather conditions in all Brazilian coffee regions continue to favor harvest progress and bean processing.

Given this current scenario, one would expect that prices would give in to the expected increase of coffee on the market, right? However, this is not completely reflected in the market at the moment.

While NY and LN contracts have indeed fallen from April's price peak, they remain overall supported. On the Brazilian domestic market, on the other hand, prices are soaring: Cepea/Esalq Arabica Coffee Indicator closed June with an average of BRL 1,349.21/bag, up 15% from May’s average and the highest since February 2022. Meanwhile, the robusta Indicator had an average of BRL 1.214,24/bag, up 20,6% from the previous month and a record-high monthly average for the indicator. On June 24th, the robusta indicator also reached the highest value in Cepea price history, at BRL 1,250.67/bag

 Arabica Harvest – Historical (% of total)

Source: Safras & Mercado

Robusta Harvest – Historical (% of total)

Source: Safras & Mercado

The main reason that prices remain supported, despite the advance of the harvest in Brazil, continues to be the global uncertainty over the 24/25 season, specially regarding the robusta crop. As we mentioned in our previous report, in Vietnam, there is no guarantee that the return of rains from May onwards will offset the dry and hot weather from the beginning of 2024, which may lead to another season of robusta deficit. This has also led to an increase in demand for the Brazilian robusta.

On the other hand, in Brazil, recent crop reports continue to point to screen size issues and concerns over 24/25 yields (for both arabica and robusta), although many regions have seen an improvement since the start of the crop. This is also fueling perspectives by part of the market of a smaller crop in Brazil and leading producers to hold their beans, which is, in hand, also boosting domestic prices.
For now, our expectations are still for a production close to 23/24 levels in Brazil, with arabica production around 45 M bags and robusta close to 22 M bags. Nevertheless, if the current scenario doesn't show any improvement in the coming weeks, we may revise our numbers.
Another point of attention in coming months is the development of the 24/25 season in Central America and Mexico. Many countries in the region also suffered a dry spell since in 2023 and the start of 2024 which might affect the production. In Mexico (the most affected country) for example, many producers expect a drop in production even with the return of rains in May. The hurricane season of the region also started early this year and should be monitored for potential impact on coffee areas.

Arabica - Brazilian Prices (BRL/bag) and NY Contracts (c/lb)

Source: Cepea, Refinitiv

Robusta - Brazilian Prices (BRL/bag) and LN Contracts (USD/mt)

Source: Cepea, Refinitiv

In Summary

With the current dry conditions in Brazil, the 24/25 coffee harvest is progressing faster than in previous years. However, even with 50% of the crop harvested in Brazil, domestic prices continue to rise, especially the robusta, with the Cepea/Esalq robusta indicator hitting new records last week.

Overall, prices are supported by the uncertainty of the 24/25 global robusta production due to adverse weather conditions between 2023 and 2024, especially in Vietnam. However, there are also some concerns about a slight reduction in the Brazilian crop of arabica and robusta and doubts about the production of washed Arabica beans in Central America and Mexico, given the extreme weather conditions until April and the impact of the hurricane season in 24/25.

On the other hand, it is good to remember that any change in this view on the 24/25 season could affect prices in the short term, as speculative positions remain high, and a more positive outlook could trigger a sell-off.

Weekly Report — Coffee

Written by Laleska Moda


Reviewed by Natalia Gandolphi


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