W38: Coffee Update

In W38 in the coffee landscape, Arabica coffee futures on the New York Stock Exchange (NYSE) fluctuated. The Dec-23 contract increased to USD 1.596 per pound (lb) on September 18 and further increased to USD 1.6095/lb on September 19 due to a weakening of the United States dollar (USD). Moreover, the coffee market is closely monitoring the final stages of the Brazilian harvest, and there are concerns about the impact of El Niño on Brazilian crops. However, Arabica futures faced downward pressure following the release of data by Conab, projecting a record-breaking Brazilian coffee harvest of 54.36 million bags in 2023, representing a significant 6.8% year-on-year (YoY) increase despite it being a negative biennial cycle. This led to a drop in Arabica futures, with prices declining to USD 1.5820/lb on September 20, followed by a further decline to USD 1.5485/lb on September 21. On September 22, Arabica futures dropped to USD 1.5115/lb, prompted by Conab's revised estimate of the Brazilian Arabica coffee harvest for 2023, which was increased to 38.2 million bags, up from the May forecast of 37.9 million bags.

Meanwhile, on September 18, the Nov-23 Robusta coffee contract increased by USD 10 per metric ton (mt) to USD 2,566/mt, primarily driven by a weakened US dollar ahead of US inflation data. This rise was primarily attributed to a weakened USD, ahead of US inflation data. However, on September 19, Robusta futures experienced a decline, dropping by USD 26/mt to USD 2,540/mt. This decline coincided with an increase in coffee stocks, with ICE inventory reporting a 3.59% rise compared to the previous day, reaching 40,070 mt (equivalent to 667,833 bags of 60 kilograms each). Additionally, expectations of a 25% increase in Uganda's Robusta coffee production for the 2023/2024 crop year due to favorable weather conditions and increased productivity from newly planted coffee trees influenced prices. On September 20, Robusta futures declined by USD 32/mt to USD 2,508/mt and then further dropped by USD 44/mt to USD 2,464/mt after the Federal Reserve signaled a commitment to higher interest rates for a longer period. The strengthening of the USD against the Brazilian real also contributed to the downward pressure on prices. On September 22, Robusta futures fell by USD 3/mt to USD 2,461/mt. Coffee stocks monitored by ICE reached a five-week high of 4,292 lots, further contributing to the market's bearish sentiment.

Brazilian coffee exports to China have surged in the first eight months of 2023, reaching 602 thousand bags (60 kg), elevating China to the ninth spot in the ranking of coffee importers. Notably, Brazilian exports of Robusta coffee in Aug-23 reached almost 699 thousand bags, marking an impressive 443% YoY increase and a substantial 41.30% increase compared to Jul-23. Despite concerns about the Robusta crop's failure in the 2023/24 season, exports achieved a new record, even if negotiations were limited. Similar weather-related challenges impacted Robusta production in Indonesia and Vietnam, both significant coffee-producing countries, leading to a constrained supply. Similarly, in Aug-23, Arabica exports reached 2.65 million bags, representing an 11.20% YoY increase.

In Aug-23, Vietnamese coffee exports showed a decline in most of their traditional markets, except Japan, the Netherlands, and Indonesia. Over the eight-month period of 2023, coffee exports to Germany, Spain, and Belgium decreased. In contrast, there was an increase in exports to Italy, the US, Japan, Russia, Algeria, the Netherlands, and Mexico compared to the same period in the previous year. Notably, Vietnamese coffee exports to Indonesia experienced remarkable growth. In Aug-23, coffee exports to Indonesia reached 1,776 mt with a turnover of USD 9.7 million, a 41.5% YoY increase in volume and a 44.2% YoY increase in value. Meanwhile, during the eight months of 2023, Vietnam exported 30,033 mt to Indonesia, resulting in a turnover of USD 93.8 million, representing a surge of 157.8% YoY in volume and a substantial 118.6% YoY increase in value.