Coffee is falling sharply after a long period of moving sideways at high prices
Coffee’s decline started in October after prices struggled at highs in the first 9 months of the year. In the past 2 months, Arabica prices have fallen by more than 50%, at one point touching the lowest level in 18 months and Robusta decreased slightly with 17%.
A more positive supply outlook has replaced market concerns about shortages in Brazil in the first half of the year. According to the latest report released by Rabobank in early November, the bank predicts that coffee production in the 2023/2024 crop year in Brazil could reach 68.5 million bags (60kg grade), an increase of 8% compared to the previous year. current service. The increased production is mainly focused on Arabica thanks to the rains that appear continuously since the end of September in Minas Gerais, the main coffee growing region of Brazil.
The supply of Robusta also became more positive when Vietnam, the world’s No. 1 Robusta supplier officially entered the harvest, causing demand to push supply to the market. According to experts’ estimates, as of November 20, 38% of the coffee growing area in Vietnam has been harvested. The larger the amount of coffee harvested, the greater the need to promote exports because farmers need warehouses to store the coffee of the new crop.
The price of coffee is not only under pressure from the supply side, but the weakening demand in the face of concerns about the economic recession has also contributed to a sharp decline in coffee prices. As a result of raising interest rates to control inflation by major central banks, the world is at risk of an economic recession.
This has put pressure on consumers, causing them to cut spending on non-essential goods and depend heavily on the health of the economy like coffee. In its October report, the International Monetary Fund (IMF) forecasted global growth in 2022 at 3.2%, of which the two major coffee consuming markets, the US and the European single currency, both continue to grow. stagnant.
In Vietnam, domestic coffee prices have not escaped the downward trend of coffee in general. Loose supply as the new harvest unfolds was the main factor driving down prices. Besides, the rising US dollar also boosted the selling force from farmers, contributing to the price drop of more than 10,000 VND/kg in nearly 2 months.
Coffee prices continue to move according to changes in supply and demand
In 2023, major central banks still decide to pursue tight monetary policies to bring inflation back to the target level, the world economic picture will continue to be bleak. Accordingly, the consumption demand for coffee will be difficult to recover and even drop sharply next year.
In October, the IMF cut its forecast for global economic growth in 2023 from 3.6% in April to 2.7%, down from the 3.2% forecast for 2022. In which, the euro area and the US are the two largest coffee consuming markets in the world, with modest growth rates of 0.5% and 1% respectively.
However, according to the latest updated data on coffee crop year 2022/2023 of USDA, the two top arabica exporting countries, Brazil and Colombia, both revised down their output compared to the mid-year report. may help coffee prices limit the weakening momentum in the near future.
For Brazil, the USDA has cut output for the current crop year to 62.6 million bags, 1.7 million bags less than reported in June. Weak production led to a 2 percent drop in exports. 4 million bags, about 36.65 million bags, the lowest level in the last 4 years. In Colombia, production is forecast to decrease slightly by 3.1% from the previous report to 12.6 million bags and supply exports to be cut by 2.3% compared to the previous forecast.
Meanwhile, the supply in Robusta exporting countries is more positive, which may put pressure on prices in the near future. Although production is still forecast to weaken slightly from the previous report, at 30.22 million bags, exports in Vietnam are estimated to increase slightly to 27.65 million bags. In Indonesia, the world’s third largest exporter of Robusta, both output and exports are more positively forecasted by USDA with an increase of 7% and 1.5%, respectively.
In the longer term, the market will react more strongly to the predictions of coffee production in coffee year 2023/2024 by the top exporting countries. Although it is quite early to predict the exact supply next season, the market also has more positive expectations compared to the previous season before La Nina will be less harsh. In Brazil, although there are mixed views on coffee production in the next crop year, analysts agree that output will be at least on par with the current crop.
Prices continue to deteriorate as recession nears
Under pressure from the continued weakening of consumption demand due to fears of economic recession, world coffee prices in general and Vietnam in particular will continue the downward trend. However, the decline of coffee will be adjusted slowly because the supply is not really as positive as what the market has been expecting.
With hailstorms appearing in Minas Gerais in late October and early November, more than 50,000 hectares of coffee in Brazil were damaged and the market fluctuated somewhat with previous expectations. Along with that, 2023 is the year of coffee crop failure according to the 2-year cycle with a crop in Brazil, which will be a factor to limit the decline caused by weak demand for this commodity’s price.
Thus, the general scenario for coffee prices is to continue to go down but the downward momentum will be adjusted compared to the current one. Specifically, the price of Arabica on the US ICE Department can be traded at the price range of 120 – 150 cents, the Robusta price on the EU ICE Department will also slow down and fluctuate between 1,600 – 1,800 USD and the domestic price in Vietnam will fluctuates in the price range from 35,000 to 38,000 VND/kg.
