The coffee market witnessed a downturn on Tuesday, relinquishing earlier gains as both arabica and robusta prices dipped. Arabica coffee reached a two-week low, while robusta hit a one-week low, reflecting the impact of Brazil’s expedited coffee harvest, which has led to an upsurge in coffee supplies.
Brazil’s faster-than-usual coffee harvest has reached 29% completion as of June 4, outpacing last year’s progress and the five-year average. This accelerated pace has exerted pressure on coffee prices, exacerbated by the depreciation of the Brazilian real against the dollar, hitting a 17-month low on Monday. The devaluation encourages export selling from Brazilian coffee producers, further contributing to downward price trends.
While the lack of rainfall in Brazil’s Minas Gerais region has offered some support to arabica prices, concerns about global oversupply persist. Recent reports from the International Coffee Organization (ICO) indicate a substantial increase in global coffee exports, with Brazil’s green coffee exports alone surging by 61% year-on-year. Additionally, Brazil’s exporter group Comexim raised its export estimate for the 2023/24 season, further intensifying market pressure.
Robusta prices, on the other hand, are influenced by fears of adverse weather conditions in Vietnam, the world’s largest producer of robusta beans. Projections from coffee trader Volcafe suggest a significant reduction in Vietnam’s robusta coffee crop due to poor rainfall, potentially leading to a global deficit in robusta beans for the fourth consecutive year.
Vietnam’s coffee production has been hampered by drought, as indicated by a -20% drop forecasted by the country’s agriculture department. Declining exports from Vietnam, evidenced by a substantial year-on-year decrease in May, coupled with projections of a slight reduction in robusta production for the upcoming marketing year, underscore concerns about supply shortages.
The bullish impact of the recent El Nino weather event on coffee prices further complicates the market dynamics. The phenomenon, characterized by drought in key coffee-producing regions, has exacerbated supply concerns, particularly in Vietnam.
Despite bullish factors, projections from both the International Coffee Organization and the USDA’s Foreign Agriculture Service indicate a potential surplus in the global coffee market for the 2023/24 season. While increased production is expected, the market remains susceptible to fluctuations driven by weather patterns, currency movements, and demand dynamics.
In conclusion, the coffee market faces a complex interplay of factors, including accelerated harvests, currency fluctuations, adverse weather conditions, and supply-demand dynamics, all of which contribute to the current downward trend in coffee prices.