Sep 24 / Laleska Moda

Despite fluctuations, market might still be on a bullish trend

Future prices of coffee continue to be volatile in September, reflecting mainly weather concerns in Brazil and Vietnam. The last few days, prices have dropped, but fundamentals still points to a bullish scenario.
In Brazil, rains hit most of the coffee growing regions this week, bringing some relief to producers. The rainfall might also induce flowering in the next few days.
However, precipitation volumes were still low, and the forecast is for irregular rainfall and high temperatures for the rest of September, increasing the downside risk for the 25/26 crop development. Soil moisture data also points to below than average levels, highlighting the hydric deficit this year.
On Vietnam, the forecast is also for higher volume of rains in the coming weeks, which may delay the harvest of the 24/25 crop in the country.
In general, market will probably continue to be sensitive to any disruption or decrease in the supply, especially since current stock levels are low in both destinations and origins.

In the last few days, coffee futures have decreased, reaching multiple years records early this week after rains were reported in part of the coffee regions in Brazil. However, fundamentals still shows support to prices, as the volume of rainfall was still low, but might induce flowering. This may increase the risk of negative impacts on 25/26 season, as the forecast for the next weeks still shows scarce rainfall and high temperatures in the coming weeks.

Moreover, soil moisture in most of the regions is also below averages and, in some case, even below historic lows. This also contributes to the increasing risk in the coffee market, especially since weather adversity already impacted 24/25 output. This Thursday, 19, Conab reduced 4 M bags its estimates for the 24/25 crop, to 54.8 M bags, with a reduction in both arabica, to 39.5 M bags, and conilon, to 15.2 M bags due to poor weather conditions during the development of the coffee trees. Our estimates are of 63 M bags in 24/25 (43 M of arabica and 20 M of conilon) 3 M bags below 23/24 numbers.

Besides Brazil, the expectation over the 24/25 Vietnamese harvest – expected to start next month on arabica regions and in November on robusta’s – is also keeping the market on its edge. The drought and high temperatures until mid 2024 are likely to impact in total production, with our estimates at 27 M bags of coffee, a slightly decrease from 23/24,an already lower crop. Now, after the passage of Typhoon Yagi on the country and with a La Niña active, concerns rise over wetter-than-normal pattern and its effect on coffee beans quality and the pace of harvest.

The lower Brazilian and Vietnamese crop in 24/25 is also expected to contribute to the fourth year of coffee global deficit which may still support coffee prices in the coming months. Another point of support – at least for now – it’s the lower stocks levels in both origins and destinations. While there has been a surge in Brazilian exports and even a recover in European stocks recently, stocks levels around the world are still below historic averages. We also expect stocks in origins to decrease until the end on 24/25. As for destinations, we might see a slightly increase, as these countries are likely to import more this season, in order to recover stocks, after reaching historic low levels in 23/24.

Yet, its good to note that world commerce is facing challenges, whit lack of containers, delay in shipments in Port of Santos (biggest of Brazil), ongoing Red Sea conflicts and now, concerns over a strike in US shipping lines, which will contribute to price volatility.

Futures prices of coffee decreased last week, in part reflecting rains in Brazilian coffee areas. However, while there might be more corrections throughout 2024, overall, the trend for prices is still bullish, mainly due to weather risks.

In Brazil, the forecast is for low rainfall levels and high temperatures for the rest of September, which increases the risk of negative effect in 25/26 crop development, as cumulated precipitation and soil moisture in many regions has been below averages. In Vietnam, after a dry and warm start in 2024, now the concerns are over higher than expected rainfall possibly disturbing the harvest and quality of 24/25 season.

Besides weather, stocks continue to be on low levels around the world, while shipments are facing some challenges, which may add support. Lastly, Fed’s rate cut on the Wednesday, 18, may also support agriculture commodities prices on the long run.

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Despite fluctuations, market might still be on a bullish trend

Despite fluctuations, market might still be on a bullish trend

Cumulative Precipitation – Minas Gerais (mm)

Soil Moisture – Minas Gerais (mm/0-1.6 m soil)

Cumulative Precipitation – São Paulo (mm)

Soil Moisture –São Paulo (mm/0-1.6 m soil)

Cumulative Precipitation – Vietnam – Central Highlands (mm)

Origins - Arabica Ending Stocks (M bags)

Origins - Robusta Ending Stocks (M bags)

In Summary

Weekly Report — Coffee

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