Arabica coffee prices continue to rise steeply. On July 22, arabica coffee jumped to its highest level in 6.5 years as trading companies doubled their predictions on the extent of damage in Brazil’s next crop after a severe frost this week. .
Accordingly, the price of arabica coffee reference contract on the New York Stock Exchange (September term) increased by 17.65 US cents, or 10%, to 1,9365 USD/lb, the highest level not seen since November / lb. 2014. The 10% gain in a single session was the biggest gain since early 2014.
For the whole week, the price has increased by about 20%, and compared to the beginning of 2021, the price is now one and a half times higher.
Price movement of arabica
Extreme weather events have continued to occur in Brazil, most recently two frosts occurred in less than a month in the main coffee growing regions of Brazil, Minas Gerais and Sao Paulo, severely affected. so much so that coffee growers say they will be forced to uproot the tree to replant.
The coffee tree is very sensitive to frost, because it causes the leaves to die, if it is light, it will have to wait until the next season to regrow leaves, and if it is heavy, the tree will die completely. Even some coffee garden owners have considered uprooting the dead coffee gardens to plant corn next year.
Some preliminary estimates suggest that coffee production next season will lose 1-2 million bags. However, up to now, some people think that assessment is too optimistic, because in fact the damage level is much higher, when Brazil is just starting to enter the cold season.
Some experienced traders think that the damage will be double that initial estimate, and the price of arabica coffee will quickly increase.
Brazilian exporter,l Guaxupe, predicts the damage could reach 4.5 million bags (the initial estimate was that Brazilian coffee production in 2022 will reach nearly 70 million bags).
“July is the month when Brazilian coffee trees flower and are “vulnerable,” said Sal Gilbertie, president and chief investment officer of Teucrium Trading. According to him, July is always a time of risk of frost. in those countries, but “the fear of the worst for the coffee market has come true this year”, the world supply of coffee will become scarce, while “the economy is recovering from the Covid-19 pandemic and need more coffee”.
Robusta coffee also increased
The arabica coffee price craze has also spread to the robusta coffee market, although the fundamentals of robusta are not as volatile as robusta.
September robusta price on the London floor ended the session 22/7 also increased strongly by 110 USD, or 6.2%, to 1,889 USD/ton.
In Vietnam, the world’s leading supplier of robusta, supply is tight but demand for coffee has also decreased due to social distancing measures against Covid-19, reducing coffee sales. Information from some coffee traders in the Central Highlands said that the reserve of coffee has decreased significantly because of the end of the crop year. Meanwhile, trading activities were almost frozen because of Covid-19.
“We are unable to sign any new delivery contracts for the remainder of the current crop year,” a coffee business told Reuters.
The 2020/21 crop year will officially end at the end of September. Coffee growers will start a new crop in October.
Freezing trade is the main reason why coffee prices in Vietnam this week are almost unchanged despite the sharp increase in London prices. In the Central Highlands coffee capital, coffee growers sold this week’s bucket kernels for VND36,500-37,200 ($1.59-$1.62)/kg, compared with VND37,000-37,200 last week. Export grade 2 robusta coffee (5% black and broken) this week has a negative price of 80-90 USD/ton compared to the reference contract on the London floor, unchanged from a week ago.
Also due to Covid-19 causing export markets to implement social distancing measures, restricting eating outside, and due to the shortage of empty containers, Vietnam’s coffee exports in the first 6 months of 2021 decreased in both volume and turnover, however, the price increased compared to the same period in 2020.
According to preliminary data of the General Department of Customs, in the first 6 months of this year, the whole country exported 843,319 tons of coffee, earning nearly $1.55 billion, the average price reaching $1,834.8/ton, down 10.3 % in volume, down 2.6% in turnover but price increased by 8.6%.
The volume and turnover of coffee exports to most markets this year decreased. Notably, exports to all 9 largest markets decreased in volume.
Germany is still the largest importer of Vietnamese coffee, accounting for 14.3% of the total volume and 13.5% of the total export value of Vietnam’s coffee, reaching over 120,478 tons, equivalent to 209.2. million USD, the average price was 1,736.4 USD/ton, down 20.4% in volume, down 8.3% in turnover but up 15.3% in price over the same period in 2020.
The second largest market is Southeast Asia with 82,283 tons, equivalent to 183.18 million USD, the average price is 2,226.2 USD/ton, down 8.7% in volume but up 3.5% in turnover and up 13 .4% in price over the same period in 2020; accounting for 9.8% of the total volume and 11.8% of the total turnover.
The US market ranked third with 60,838 tons, equivalent to 118.91 million USD, priced at 1,954.6 USD/ton, down 23% in volume, down 16.8% in turnover, but the price increased by 8% over the same period. accounting for over 7% of the total coffee export volume and turnover of the country.
However, exports to China – the 10th largest market of Vietnamese coffee, increased sharply this year, in 6 months reached 28,219 tons, equivalent to 64.18 million USD, priced at 2,274.2 USD/ton; increased 59.6% in volume and 58% in turnover respectively over the same period last year. Even so, China accounts for only 4% of Vietnam’s total coffee exports and exports.
The price of Arabica coffee is forecast to increase by 25% more
According to the technical analysis chart, the price of coffee is still on a steep climb, and may increase by another 25% before stopping the increase.
This is entirely possible because world coffee demand is recovering strongly after the Covid-19 pandemic, while a sharp drop in Brazil’s supply will leave a large gap between supply and demand.
In June, Brazilian coffee exports increased sharply, reaching 3.012 million bags (60 kg/bag), turnover of 423.2 million USD, bringing total exports in the first 6 months of this year to 20.8 million bags, increased by 4.5% in volume and 7% in turnover over the same period last year. In the 2020/21 crop year, the country’s exports reached 45.6 million bags, up 13.3%.
With such a strong demand trend, it is inevitable that a decrease in Brazilian supply will lead to a further price increase. And once the price of arabica is too high, coffee roasters will shift to increase the proportion of robusta blends, which is beneficial to the price of raw materials for instant coffee production.
Technical analysis forecast the price of arabica coffee
References: Reuters, Marketwatch, Talkmarkets
