Oct 4
/
Laleska Moda
Prices drop with forecasted rains in Brazil and possible EUDR postponement
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- After several weeks soaring, coffee prices finally lost strength this week, due to the possibility of rains returning to Brazil.
- Dry and warm weather until early October has increased downside risk for the 25/26 Brazilian crop development, putting the market on its edge.
- However, most models point to the return of considerable rainfall in the next 10 days in most of the Brazilian coffee regions, which could bring some relief to plantations, although its still too early to predict to the extent of recovery of coffee trees.
- Besides the more positive outlook for Brazil, on October 1st the European Commission proposed to postpone the EUDR implementation, also adding to the bears. While the proposition still needs the approval of the European Parliament and Council, there is growing internation and even domestic support for the delay.
- If approved, there is a chance that buying pressure could ease in the short term, as many companies and exporters were trying to secure coffee in Europe before the EUDR came into effect.
Prices drop with forecasted rains in Brazil and possible EUDR postponement
After reaching record highs in September, coffee prices fell back in the first week of October. The main bearish factor in the market is the forecast for significant rainfall in the Brazilian coffee regions over the next 10 days. Both European and American models are pointing to increased rainfall from the 9th of October, particularly in the regions of Minas Gerais and São Paulo, which have been most affected by the drought to date.
The rainfall will be essential for the flowers that opened at the end of September and will help the trees to recover from the hydric deficit, although it is likely that the unfavorable weather to date has already affected part of the production potential for the 25/26 season. However, it's still too early to estimate the size of the next crop, as the setting of the flowers that have already opened and the rainfall patterns over the next few months will be crucial to the development of the 25/26 cycle.
Significant rainfall is also forecasted for Espírito Santo, a less affected region, but where the rains are also welcome as flowering has already occurred in August and September. In general, the weather scenario has been more positive for the Robusta regions than for the Arabica regions.
Precipitation Forecast in Brazilian Coffee Regions – European Model (mm)
Source: Refinitv
Precipitation Forecast in Brazilian Coffee Regions – American Model (mm)
Source: Refinitv
Arabica and Robusta prices are currently under pressure considering the more positive outlook for Brazilian weather and could continue to do so if the rains do materialize. New prospects for the EUDR could also weigh on prices. After a backlash and pressure from many producing countries and coffee companies - and even the International Coffee Organization (ICO) - the European Commission has proposed this Tuesday, 1st, to delay the EU's deforestation regulation, making it applicable on 30 December 2025 for large companies and 30 June 2026 for micro and small enterprises. Additionally, the Commission also published guidance documents and an international cooperation framework to support global stakeholders, Member States, and third countries in their preparations for the regulation implementation.
The proposal still needs to be approved by the European Parliament and the Council however, as mentioned above, there is growing international and even domestic pressure for a delay. If approved, there is a chance that the buying pressure of recent months could ease in the short term. It's worth remembering that there has been a surge in European coffee imports this year, particularly of Brazilian beans, as many companies and exporters sought to secure coffee in Europe before the EUDR came into effect. Cumulative figures for 2024 show that, until September, EU has imported 34.8 M bags of green coffee, an increase of 3.5% from 2023 numbers and 24.6% higher than the 5-year average for the period, showing the recovering trend of European exports this year.
European Union – Green Coffee Imports by Country/Group (‘000 bags)
Source: : Eurostat, Agridata, Hedgepoint
European Union – Cumulative green coffee imports up to September (M bags)
Source: : Agridata
In this sense, the market is likely to remain cautious but more bearish in the coming days, waiting for confirmation of both the Brazilian rains and the stance on the implementation of the EUDR.
It's also worth noting that Vietnam is preparing for the 24/25 harvest in the coming weeks. Field work is likely to start this month in the Arabica regions and in November on the Robusta side, with differentials narrowing and business tepid as exporters wait for the new crop. As supply in the Asian country begins to increase, there is a chance that it will put more downward pressure on future coffee prices.
In the longer term, however, the scenario could be more supportive for prices, with the 24/25 global balance still pointing to a deficit - mainly due to the decline in robusta - and stocks at origins and destinations still below historical averages.
In Summary
Coffee prices have been under pressure in recent days and may remain so in the coming months. The biggest bearish factor in the market at the moment is the forecast for significant rainfall in the Brazilian coffee regions over the next few days. In addition, the European Commission's proposal for the EUDR postponement, especially if approved, could also add to the bearish sentiment, as some of the short-term buying pressure is likely to ease. The start of the 24/25 season in Vietnam later this month could also add to the pressure in the short to medium term.
However, it is worth noting that in the longer term, prices could still find support. While the rains in Brazil could improve the condition of the coffee fields and help the development of the 25/26 season, the unfavorable weather so far could still have an impact on the productivity of this next crop. The current Brazilian season has also seen lower than expected production due to drought in 2023 and part of 2024, and while the upcoming Vietnamese crop will increase supply in the short term, the season is likely to be smaller, with our expectations of a deficit in the 24/25 global season. Finally, it is worth remembering that stocks are at historically low levels both at origin and destination, and logistical problems are still on the horizon, which could still lead to higher-than-average prices in the coming months.
Weekly Report — Coffee
Written by Laleska Moda
laleska.moda@hedgepointglobal.com
Reviewed by Livea Coda
livea.coda@hedgepointglobal.com
livea.coda@hedgepointglobal.com
www.hedgepointglobal.com
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This page has been prepared by Hedgepoint Global Markets LLC and its affiliates (“HPGM”) solely for informational and instructional purposes, without the purpose of instituting obligations or commitments to third parties, nor is it intended to promote an offer, or solicitation of an offer of sale or purchase relating to any securities, commodities interests or investment products. Hedgepoint Commodities LLC (“HPC”), a wholly owned entity of HPGM, is an Introducing Broker and a registered member of the National Futures Association. The trading of commodities interests such as futures, options, and swaps involves substantial risk of loss and may not be suitable for all investors. Past performance is not necessarily indicative of future results. Customers should rely on their own independent judgement and outside advisors before entering in any transaction that are introduced by the firm. HPGM and its associates expressly disclaim any use of the information contained herein that directly or indirectly result in damages or damages of any kind. In case of questions not resolved by the first instance of customer contact (client.services@Hedgepointglobal.com), please contact our internal ombudsman channel (ombudsman@Hedgepointglobal.com) or 0800-8788408/ouvidoria@Hedgepointglobal.com (only for customers in Brazil).