1. Weekly News

Global

Coffee Market Faces Supply Risks Due to Adverse Weather and Global Shortages

The coffee market is experiencing upward pressure due to short-term supply concerns driven by adverse weather conditions in Brazil and Vietnam. Brazil's severe drought in 2024 has resulted in lower soil moisture levels, leading to reduced production estimates for the 2024/25 season, also potentially impacting future crops. In Vietnam, high temperatures and drought in the first half of the year are expected to result in a smaller coffee harvest for the 2024/25 season, contributing to global supply challenges. Although Brazilian conilon exports are increasing, they may not sufficiently fill the gap left by Vietnam’s reduced output, intensifying market sensitivity to supply issues. Ongoing supply shortages and declining certified stocks suggest a global coffee deficit is anticipated for the fourth consecutive year. High demand for Robusta and low stocks in Southeast Asia further complicate the scenario, contributing to significant market volatility and uncertainty for producers and buyers.

Brazil

Brazilian Coffee Market Adjusts to Recent Rainfall and Production Prospects

Recent rainfall in Brazil has boosted coffee flowering, easing some production concerns following a prolonged dry spell. This climatic development has led to shifts in the coffee market, with futures prices reflecting a cautious outlook. The rainfall is expected to improve growing conditions, but concerns remain about the overall impact on future yields.

Projections indicate significant rainfall over the second and third week of October, with a geographic coverage not seen since the transition from summer to autumn. This weather pattern may play a crucial role in shaping the upcoming coffee season, influencing market dynamics amid ongoing uncertainties regarding supply and production levels.

Brazil's Coffee Industry Highlights Sustainability and Global Compliance at Swiss Event

On October 2, 2024, HedgePoint Global Markets, Cecafé, and Serasa Experian hosted a pre-event at the 15th Swiss Coffee Trade Association (SCTA) Coffee Forum & Dinner in Geneva to discuss challenges and opportunities for Brazil's coffee sector in meeting global regulations. Key discussions included the European Union's Deforestation-Free Products Regulation (EUDR), with the possibility of a one-year extension for compliance. Brazil's coffee industry emphasized its commitment to sustainability, with strong environmental preservation and adherence to environmental, social, and governance (ESG) criteria. The event highlighted Brazil’s readiness to meet the demands of international markets, including the United States (US), China, and Japan.

European Union

Global Coffee Industry Discusses Impact of EU Regulations at WTO Meeting

During a World Trade Organization (WTO) meeting in Geneva on October 1, coffee industry leaders and organizations, including Brazil’s Cecafé, addressed the EUDR and its implications for global coffee trade. While European businesses reaffirmed their commitment to sustainability, concerns arose over excessive regulations potentially excluding vulnerable countries, especially in Africa. Cecafé’s CEO highlighted Brazil's efforts in environmental compliance and carbon-negative coffee production. The WTO Director-General expressed interest in global carbon frameworks, citing Brazil's practices as a potential model.

EU’s Deforestation Regulation Delays Ease Coffee Supply Concerns

Several major coffee traders, including Sucafina SA, Ecom Agroindustrial Corp., and Louis Dreyfus Co., have signed agreements to sell deforestation-free coffee to the European Union (EU) under the upcoming EUDR. Despite the EU's plans to delay the regulation's enforcement, companies remain confident that top producers like Brazil and Vietnam can meet the requirements. However, details on compliance documentation are still unclear, adding some risk. These agreements show traders’ confidence in maintaining coffee flows, even as EU regulations become more stringent.

Honduras

Honduran Coffee Exports Expected to Rise Despite EU Deforestation Concerns

Honduras anticipates a 14.5% increase in coffee exports for the 2024/25 season, reaching 5.37 million 60-kilogram (kg) bags. This growth is driven by improved production conditions, according to the head of the Honduran Coffee Institute (IHCAFE). However, concerns linger over the EUDR, which could impact exports to Europe, a key market for 55% of Honduras’ coffee. Local farmers are requesting an extension of the compliance deadline, fearing they lack the required documentation to meet the EU's stringent environmental standards.

Indonesia

Indonesia's Coffee Exports Increase as EUDR Policy Delays Continue

The Indonesian Coffee Exporters Association (AEKI) is optimistic about the continued growth of national coffee exports in 2024. According to Badan Pusat Statistik (BPS) data, Arabica exports rose 39.44% year-on-year (YoY) to USD 352.64 million, while Robusta exports increased 34.11% YoY to USD 468.55 million from Jan-24 to Aug-24. The growth is attributed to a strong harvest and increased shipments to Europe, driven by the anticipated EUDR. Key export destinations include Japan, the US, and Europe, with Robusta mainly sourced from South Sumatra, Bengkulu, and Lampung.

Peru

Peru's Coffee Production and Export Growth in 2024

In 2024, Peru's coffee production is projected to reach 240,065 tons, reflecting a 9% decline from the previous year due to aging plantations, climate factors, and labor shortages. Despite this, coffee exports saw substantial growth in the first half of 2024, with 165.35 thousand tons exported. This generated USD 240.5 million, a 51.87% increase in value and 102.46% rise in volume compared to the same period in 2023. By the end of 2024, Peru is expected to export 584.22 thousand tons of coffee, valued at USD 1.1 billion, marking a 31.89% increase in export value.

Uganda

Uganda's Growing Coffee Industry Boosts Exports and Global Reach

Uganda's coffee industry, primarily producing Arabica and Robusta varieties, has grown significantly in recent years, contributing heavily to the national economy. In 2023, Uganda's coffee exports reached USD 1.14 billion, up from USD 846 million in 2022, driven by the government's "Coffee Roadmap" program designed to expand exports to USD 1.5 billion by 2030. Known for its high-quality production due to favorable geographic conditions, Uganda is one of the world's largest Robusta producers. Major importers include European countries, the US, and Turkey, while domestic consumption continues to rise.

Uganda's Coffee Exports Surge in 2024 with Global Price Increases

In Aug-24, Uganda's coffee exports reached USD 221.63 million, a 13% increase from Jul-24. The country exported 837,915 60-kg bags of coffee, contributing to a total of 6.39 million 60-kg bags valued at USD 1.35 billion from Sep-23 to Aug-24, marking a significant rise compared to the previous year. The Uganda Coffee Development Authority (UCDA) credits the growth to bumper harvests and higher global coffee prices due to droughts in Brazil and Vietnam. The EU remains Uganda's largest importer, accounting for over 70% of exports.

Ukraine

Ukraine's Coffee Imports Rise as Global Prices Soar from Supply Disruptions

From Jan-24 to Aug-24, Ukraine imported 31.97 thousand tons of coffee worth USD 172.8 million, surpassing the previous year's figures of 28.48 thousand tons valued at USD 137.3 million. Coffee prices in Ukraine have been rising since the war began, influenced by global market conditions. Weather-related disruptions, such as Brazil's worst drought in 70 years and unfavorable conditions in Vietnam, have driven up coffee prices globally. Experts predict further price increases in the 2025/26 season, with Asian demand contributing to the upward trend.

2. Weekly Pricing

Weekly Coffee Pricing Important Exporters (USD/kg)

Yearly Change in Coffee Pricing Important Exporters (W40 2023 to W40 2024)

Brazil

In W40, the price of Brazilian coffee is reported at USD 6.73/kg, reflecting a 3.86% decrease week-on-week (WoW), which marked a price peak at USD 7.00/kg in W39. This decline follows a period of rising prices since W37, when the price was USD 6.65/kg, largely influenced by significant rainfall that has improved coffee flowering and eased production concerns. However, while W40 shows a price drop, it still indicates a month-on-month (MoM) increase of 1.20% and a YoY increase of 19.12%. These price increases resulted from adverse weather conditions earlier in the year, including Brazil's severe drought, which has led to lower soil moisture levels and reduced production estimates for the 2024/25 season.. Thus, while current prices reflect some stability, the overall market dynamics remain influenced by the contrasting impacts of recent climatic events and ongoing supply concerns driven by the broader global context.

Colombia

As of W40, the price of Colombian coffee stands at USD 7.65/kg, reflecting a slight WoW increase of 0.13%. This follows a MoM increase of 3.52% from USD 7.39/kg in W37. The recent price uptick is attributed to ongoing weather disruptions in Colombia, particularly drought conditions, which have impacted coffee production. Additionally, lower supply in the global market has further contributed to rising prices. Despite the recent price increases, there is a YoY decline of 2.67%, primarily driven by an anticipated significant coffee harvest of 13 million 60-kg bags in 2024, representing a 15% YoY increase. This supply increase is expected to stabilize prices in the longer term, despite the current pressures on price.

Vietnam

As of W40, the price of Vietnamese coffee is reported at USD 4.73/kg, reflecting a slight WoW decrease of 2.27% from USD 4.84/kg in W39. This decline follows a MoM drop of 2.67% from USD 5.02/kg in W37. The recent price fluctuations come after a series of increases in prior weeks, driven by high temperatures and drought conditions experienced in Vietnam during the first half of the year. However, the current supply constraints are beginning to ease, leading to minor price drops. As the market adjusts to these changing conditions, the outlook remains cautious, considering the potential impact of weather on future harvests and overall coffee production levels in Vietnam.

3. Actionable Recommendations

Diversify Sourcing Strategies

Coffee importers should diversify their sourcing strategies by expanding their supplier base beyond traditional exporters like Brazil and Vietnam. Given the adverse weather conditions affecting coffee production in these countries, exploring suppliers in Honduras, Ecuador, and Indonesia can mitigate supply risks. Establishing relationships with more producers and cooperatives in these regions can also provide a buffer against market volatility. Importers should consider forward contracts with these suppliers to lock in prices and ensure stable supply.

Invest in Sustainability and Compliance

Coffee producers and exporters in Brazil and Colombia should invest in sustainability practices to align with the EUDR. This includes obtaining certifications and improving traceability to meet compliance standards. By showcasing sustainable practices, these countries can enhance their marketability in the EU and potentially access premium pricing. Engaging in collaborative initiatives with European traders can facilitate knowledge sharing on compliance requirements and market expectations.

Enhance Quality and Yield

Governments and agricultural organizations should prioritize enhancing coffee quality and yield through research and development in cultivation practices. Collaborating with institutions to develop climate-resilient coffee varieties can lead to improved disease resistance and higher yields. Additionally, implementing training programs for farmers on sustainable agricultural techniques, such as agroforestry and organic fertilization, can enhance production while promoting environmental stewardship. Engaging international organizations for funding can support infrastructure improvements and quality assurance programs, increasing market access for producers. Lastly, marketing initiatives highlighting sustainable practices and unique coffee qualities can strengthen local brands in the global market, ultimately boosting export quality and volume.

Sources: Tridge, Agraria Pe, Agropolit, Cecafe, Cafe Point, Industry Konatan, Financial Food, Noticias Agricolas, Portal do Agronegocio, Sondakika, VinaNet