06.11.2023 – Arabica coffee has just risen to its highest level for over four months. No wonder, as stocks are emptying. We shed light on the background.
A small bull run for Arabica: the past few days have seen an upward trend, here is the four-hour chart.
Source: Bernstein Bank GmbH
And this is the reason for the recent price increase: according to a statement on Friday, the stocks of Arabica managed by the Intercontinental Exchange (ICE) have fallen to a 24-year low of around 360,000 bags. It also said that there were currently no new goods waiting to be added to the warehouses. Reuters explained that the low level can be explained by the fact that the physical market is valuing the commodity higher than the prices achieved on the ICE. In other words, suppliers are expecting even higher prices.
Brazil and Colombia
John Goodwin, Senior Commodity Analyst at ArrowStream, recently told Bloomberg that falling stocks are another factor behind the bullish outlook for the coffee variety. Despite recent rainfall in Brazil, which is positive for the plants, it is far too early to focus solely on the rain. Because there are “still too many question marks out of Brazil and Colombia for me to believe this recent rally is already over.”
These are some of the question marks: The logistics situation in Brazil is anything but satisfactory. In addition, the relatively strong real against the dollar has recently dampened the export mood of producers. Cecafe, the Brazilian exporters’ association, reported in mid-October that exports of Arabica from Brazil had fallen by a fifth year-on-year. The 2.4 million bags shipped were the lowest level for this month in six years. Brazil is the world’s largest producer of Arabica. Colombia also had to contend with weather problems and insufficient pollination of the plants.
Is the boom sustainable?
However, after a heatwave in recent weeks, the rain is now returning in Brazil. Which promises a better harvest. The weather service Maxar Technologies recently announced that the growing areas in Brazil will receive moderate rain this week. Somar Meteorologia had previously stated that the Minas Gerais region in Brazil was receiving 130 percent of the historical rainfall level. Around a third of Brazil’s coffee is grown there. The World Bank is also counting on falling prices in the medium term: It expects supply to increase in Brazil, Vietnam and Colombia in the near 2024.
It should be noted that demand should not be overlooked. If the world slips into a deep and prolonged recession, this will also have a negative impact on the price of coffee. If the economy picks up again, demand will increase. We look forward to seeing how things develop and wish you successful trades and investments!
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