Fears about the weather in Brazil and the dollar’s low put pressure on arabica coffee prices on the New York Stock Exchange. Last week’s rainfall in coffee-producing areas in Brazil was lower than expected, which, together with high temperatures, increased concerns about production. It is worth remembering that Brazilian coffee crops were severely affected last year due to a historic drought and very high temperatures. This recurrence of heat waves ends up generating apprehension and is reflected in the behavior of growers in the physical market and also among traders on the commodities exchange.
Another factor in the volatility of coffee prices came from the financial turmoil due to “Super Wednesday” with the interest rate decision by both the US Federal Reserve (Fed) and Brazil’s Copom [Monetary Policy Committee]. Expectations were confirmed, and Brazil raised its interest rate again by 1%. The high in Brazil and the maintenance of US interest rates widen the difference between interest rates and attract more investors, who seek to take advantage of the better remuneration in Brazil. The inflow of dollars into the country ends up putting pressure on the exchange rate and leading to the appreciation of the local currency (real).
This financial and climate “combo” has driven coffee prices, especially on the ICE US. Coffee has risen again and is trading above 390 cents a pound, with the significant 400-cent line already on the radar. But the recovery of the dollar and the forecast for heavier rainfall from the weekend onward helped to ease the gains, and coffee resumed trading below the 390-cent line in NY. The weather in Brazil and the dollar should remain on the radar for the beginning of next week.
The arbitrage between NY and London remains high but is moving away from the top by exceeding 155 cents per pound. London is paying closer attention to the weather in Southeast Asia, due to the early blossoming period in Vietnam, and also the movements around the canephora (conillon + robusta) harvest in Brazil.
Low stocks make concerns about the weather in Brazil further impact on futures prices
Light, scattered and below-expected rainfall in coffee-growing areas in Brazil has caused concern among farmers. This situation was particularly prevalent in Bahia, São Paulo, Paraná, and most of southern Minas Gerais. The situation was aggravated by above-average temperatures in Bahia, northern Minas Gerais, and northern Espírito Santo.
From the end of the week, the rain is expected to become more intense in the south of Minas Gerais, the Matas de Minas region, and São Paulo, also advancing to the northern half of the region, covering areas between northern Minas Gerais and sections of Bahia. Moisture is expected to decrease, with longer periods of dry weather, between Paraná and southwestern São Paulo. Rainfall will decrease again at the end of next week and is expected to remain above average in Bahia, northern Minas Gerais, and northern Espírito Santo over the next ten days.
Low global stocks, especially in the hands of growers, after the strong movement of coffee exports and purchases by the global industry in 2024, further fuel bullish volatility. Low reserves make the market much more vulnerable to news of production losses.
