Welcome to our latest edition of Market Watch! Andrew Blyth & Tom McLaughlin are here to provide you with the latest insight into coffee exports, arabica & robusta coffee “c” market prices, and more as of June 2024.

Are robusta coffee shortages dictating “c” market prices?

Brazil harvest is in full swing, and people expect the final crop number will near an all-time record. However, this has not stopped coffee prices from continuing to push higher. Lingering shortages of Vietnam robusta coffee have contributed to driving the ICE KCU’24 futures contract to settle at $2.3035 on June 20th.

Fortunately, Brazil stepped up this past 2023/24 season with record exports. In the 2020/21 season, Brazil exported a record 45.7 million bags. After 11 months of exports for 2023/24, exports have totaled 43.7 million bags, and current June exports will undoubtedly break the 2020/21 record. With robusta coffee prices at record highs due to weather and production issues in Vietnam, Brazil has shipped record amounts of its robusta “conilon” coffees. This has helped keep coffee supply/demand fundamentals from getting totally out of hand. So, there doesn’t appear to be an overall shortage of coffee, yet the market remains high.

If the shortages aren’t that bad, why is the price still so high?

Commodity markets tend to look forward. There is concern that the below average rainfall and higher than normal temperatures this year in coffee-growing regions may cause problems for next year’s crops. This could result in another year of lower robusta coffee production from Vietnam. Additionally, we are in the midst of Brazil’s frost season, and this tends to keep sellers away from the market. Furthermore, labor shortages in coffee-producing countries, high energy and fertilizer costs, and stubbornly high inflation have carved the path for higher prices, allowing the market to be comfortable with futures prices over $2/lb.

That’s some insight into the “Fundamentals” of coffee, or the balance between production and consumption. Unfortunately for the coffee trade (growers to roasters), the current market climate is influenced heavily by the Non-commercial commodity funds and speculators. Commodity Funds, Index Funds, and short/long term commodity speculators have always had a presence in commodity markets. Currently, they have very large long positions in coffee futures. This has essentially poured gasoline on the fire and kept prices from settling down, regardless of coffee steadily flowing into the market. Speculators use a scenario like the Vietnam robusta coffee shortage as a barometer to establish their opinion of a market. When the money starts to flow and their positions grow, we can easily see the impact of their trading power practically putting them in control of what happens next.

What does this mean for you?

As of today, speculators/investors represent approximately 40% of the market, a record high. Until news from major producing countries is positive, certified stocks grow to comfortable levels, and speculators want to take profits, the trade will have to navigate higher levels. That being said, we have been here before, and we will get through this. Importers and roasters still need to buy coffee, and growers and exporters still need to sell.

While these levels are not ideal, we must forecast our needs, find the right lots, and make our commitment to ensure steady supply. Committing to coffee doesn’t always require locking in a long-term price. Give us a call so we can walk you through your projected needs, our top-cupping new arrivals, and the best way to approach short and long-term pricing! Our team of experienced traders is always here to help.

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