Last week’s achievement was that the market bounced back after a fairly deep free fall.
Due to supply concerns, coffee prices increased sharply again last week, after falling very deeply in the first two days of the week. Although the current increase has not yet filled the gap left by the decline, Robusta coffee prices closed the weekend session, returning to a psychological high of over $5,116/ton based on March prices.
Arabica coffee prices on the New York market in March also increased very strongly, close to the old high mark set on November 29 to close at 330.25 cents/pound.
The General Statistics Office of Vietnam reported that Vietnam’s November coffee exports decreased by 49.1% over the same period last year to 1,000,000 bags, the export volume of the first 2 months of the new crop is October and November. November 2024 is also 36.61% lower than the same period last year, when exports in these two months only reached 1,733,333 bags. The above figure clearly reflects the current status of Vietnam’s coffee crop in the context of rising prices and farmers understand the situation of their crop better than anyone else.
Looking at Brazil, the weather situation is not any brighter when the Somar meteorological agency reported on Monday that the rainfall in Brazil’s largest arabica coffee growing region, Minas Gerais, last week was only 17.8. mm, which is 31% of the historical average.
The reason that is believed to have caused coffee prices to drop unexpectedly on Tuesday amid a market shortage was when the market adjusted prices in response to the news that the Vietnam Coffee and Cocoa Association raised its estimate of coffee production. Vietnam coffee in 2024/25 to 28 million bags from the previous estimate of 27 million bags in October.
It is also important to recall that coffee prices have also been supported since November 22 when the Foreign Agricultural Affairs Service, often referred to as FAS under the US Department of Agriculture, issued a 2024 coffee production forecast. /25 of Brazil is 66.4 million bags, replacing their previous level of 69.9 million bags. In June FAS also said Brazil’s coffee inventories were 1.2 million bags at the end of the 2024/25 season, down 26% year-on-year. These are very important figures that help coffee prices continue to stay high.
A comment from EURONEWS news in Europe said on December 6, 2024
There are many concerns about the crop in Brazil and Vietnam, the world’s largest coffee producers.
Coffee prices have reached their highest level in 47 years.
This price is 70% higher than at the beginning of the year and is a price not seen since 1977.
Prices are rising due to concerns about the impact of extreme weather and severe drought in top coffee-producing countries such as Brazil and Vietnam.
“A challenging crop in Vietnam, the leading producer of Robusta coffee beans, has now shifted to Brazil, where adverse weather has raised serious concerns about the 2025 Arabica coffee crop.“, Head of Commodity Strategy at Saxo Bank Ole Hansen wrote in a recent commodity market analysis:
Brazil, the main producer of Arabica coffee beans, was struggling with its worst drought in decades before rain finally arrived in October. Even so, soil moisture remained low. , raising concerns that the crop will not meet expectations, thereby pushing up the price of the Exchange.
Of the two types of coffee traded on the commodity market, the price of Arabica coffee has increased by nearly 70% year to date, while the price of Robusta coffee has increased by more than 60%.
Coffee is one of the most traded commodities in the world and demand is growing, fueled by growing consumption in China. However, only a few producing countries can meet this demand. Major producing countries include Brazil, Vietnam, Colombia, Indonesia and Ethiopia, all of which are tropical countries greatly affected by climate change.
Consumers may already be feeling the impact of rising market prices, as the world’s largest coffee producer, Nestle SA, announced two weeks ago that it would further increase coffee prices.
In addition, Reuters published information on December 5, 2024, also reporting from London: Global coffee prices have skyrocketed to their highest level in nearly 50 years due to bad weather in Brazil and Vietnam, forcing coffee producers to Roasters like Nestle have to increase prices and consumers have to hunt for cheaper coffees in the context of the current cost of living crisis.
The price spike will benefit farmers this year’s crop, but create difficulties for traders who face high hedging costs on exchanges and have to scramble to get their hands on the profits. coffee beans they ordered.
WHAT DRIVES PRICES?
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Production problems related to bad weather in Brazil and Vietnam have caused global supply to lag demand for three years. That caused KC coffee stocks to dry up and pushed the benchmark price on the ICE market to a peak of 336 cents/pound. The last time coffee traded at such a high level was in 1977 when frost destroyed many coffee fields in Brazil. However, the shock to consumers then was much greater.
If adjusted for inflation, 336 cents in 1977 would be equivalent to 1,700.68 cents today.
Meanwhile, experts are predicting that next year coffee output will be even more bleak. Brazil, which produces nearly half of the world’s arabica coffee – the premium bean mainly used for roasting and grinding – has experienced one of the worst droughts on record this year.
Although rain finally arrived in October, soil moisture remains low and experts say the trees are producing too many leaves and too few flowers to produce fruit. Vietnam, which produces about 40% of robusta beans commonly used to make instant coffee, also experienced a severe drought earlier this year that has been followed by excess rain since October. but it hinders the harvest.
WHY ARE TRADERS WORRIED?
Brazil-based traders Atlantica and Cafebras are seeking a court-supervised debt restructuring, as soaring coffee prices, crippling rising hedging costs and causing delays in delivery. A court-supervised debt restructuring would lead to bankruptcy if negotiations fail.
Traders who buy coffee beans from Atlantica and Cafebras often hold short positions in the futures market to hedge their realized market risk. Now fearful that they may no longer be able to buy physical coffee from Atlantica and Cafebras, many traders are closing out their losing futures short positions.
Closing short positions involves buying back futures contracts on the exchange, which will push the trading market price even higher.
Higher futures prices will push up margin levels, or the upfront payments that traders must pay to protect against trading losses, thus creating even more tension in the industry.
IMPACT ON ROASTERS AND CONSUMERS
Soaring coffee prices are a problem for roasters.
The boss of Nestle, the world’s largest coffee company, was fired earlier this year after the board was unhappy about weak sales and loss of market share due to rising prices, causing consumers to switch to cheaper brands.
Roasters tend to buy coffee months in advance, which means consumers can expect to see a price spike in six to 12 months. Consumers who drink coffee outside will be less affected by the current price increase.
Both farmers and traders are cautious with their moves at the moment. In the coffee capital of Dak Lak, many interviewed farmers said their estimated output this year was reduced by up to 50% due to the prolonged heat wave at the beginning of the year.
Kinh Vu (giacaphe.com)
