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Welcome to our February edition of RNY Market Watch! Andrew Blyth & Tom McLaughlin are here to provide you with the latest insight into coffee futures price as of February 2023.
In February, the coffee futures price has rallied 40 cents since the January 11 low of $1.4205. Since then, the coffee futures price has traded as high as 1.8420 on February 1. There has been much speculation as to the size of the next Brazil harvest this summer, which has certainly contributed to coffee’s price volatility recently. It is not surprising that there are big differences in estimates for this crop. On the lower end, CONAB, a Brazil government agency, came out with its first estimate for the upcoming crop last month. The number was 54.9 million bags (37.4 mil arabica, 17.5 million robusta). Wolthers Douque, a green coffee importer, recently pegged their estimate at just over 65 million bags. As Brazil produces upwards of 1/3 of the world’s coffee, its final crop number influences coffee prices as seen on the ICE Coffee futures market.
Differentials for many coffees have firmed in the past few weeks, which has helped prices move higher. A stronger Brazil Real versus the US $ has also helped to support coffee prices.
The non-commercial trader (commodity funds/specs) was a big reason coffee prices dropped the last couple of months. Last week, the CFTC Commitment of Traders report showed managed money funds increased their net short coffee position to 40,480 contracts, which was a 3 year high. This fund selling has been the primary reason coffee prices traded as low as 1.4205, which was a 20 month low. Many of these funds trade in the short to medium term time frame, and the 40 cent rally the past 2 weeks has been aggressive short covering by this sector. Even after this run higher, these funds may still be short 15-25 thousand lots.
Coffee prices moved higher not long after Cecafe reported Brazil December ’22 coffee exports were 3.2 million bags, which was 15% lower y/y. It would appear that exporters and farmers held back on exports because of the low prices seen in December. Many producers/exporters from other origin countries also were not inclined to sell at prices lower than $1.50. This helped the market regain its footing, and begin this move back up.
Robusta prices this week traded to a 3 month high, as exchange robusta stocks fell to a 7 year low. Also, Volcafe recently forecast that the global 2023/24 robusta coffee market would see a record deficit of 5.6 million bags. Vietnam’s General Statistics Office this week reported that Vietnam’s January coffee exports fell -30.9% y/y to 160,000 metric tons.
Colombia, the world’s second largest producer of arabica beans, has continued to have weather related problems. The Colombian Coffee Federation reported that 2022 Colombian coffee exports were 11.1 million bags, a decline of 8% from a year earlier.
ICE Certified coffee in warehouses were at 861,495 bags on January 31. This is almost 500,000 more bags than what was seen in early November, but this increase was past crop coffee. With differentials where they are, it is unlikely we will see new crop coffee be delivered to the exchange. Unfortunately, the short-term direction of the market may well depend on the non-commercial sector (managed money/speculators/funds). If these funds continue to cover shorts, and then reverse and go long, it would not be surprising for prices to continue to move higher. We will continue to monitor this.
Looking forward over the coming months, we will continue to keep a close eye on the “C” Market and it’s influential factors. However, it’s important to not lose sight of the big picture. Currently, the market is at $1.78. This coffee futures price is a better price than we’ve experienced for most of the past 2 years. This is a fair market level for both producers and roasters to thrive and sustain their businesses. Not to mention, new crop centrals are shipping in the next 4-6 weeks. The best time of year for arrivals is March thru July.
The time to forecast and plan for new crop and a 2023 roasting plan is now. Contact us today or next time we talk, ask what we’re excited about so you can take advantage of a fair price and long list of soon to be new crop arrivals.
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