Coffee unsuccessfully tested again the 190-cent line on ICE US driven by a surge in robusta

215

Arabica coffee tests the 190-cent line again in NY, driven by the rise of robusta in London. The market reacts to the decline in stocks in Europe, which totaled just 6.7 mln bags at the end of February, according to information from the European Coffee Federation, released by Reuters. A volume 41% lower than the same period last year. The industry’s stance of reducing stocks and working with shorter positions contributes to the decline in reserves. However, the main factor for the decline in stocks in Europe is the difficulty in supply, caused by the lower availability of robusta in Asia and the logistical difficulties on the Asia-Europe route.

Production in Vietnam, the world’s main grower of robusta, is projected by USDA at 27.50 mln bags in the 23/24 season, a volume well below the 31.30 mln bags preliminarily indicated. The years of low financial returns for Vietnamese growers ended up leading to a decline in investments. There has also been a loss in the area for other crops such as black pepper and fruits – especially durian, which is a very popular fruit in China and Southeast Asia. The dry climate and high temperatures in recent years ended up complementing production losses and increasing the decrease in production, which resulted in a strong squeeze on supply, reflected in the current low stocks. The Vietnam Coffee and Cocoa Association (Vicofa) projects the 23/24 coffee crop (Oct/Sep) in Vietnam between 1.6 and 1.7 thousand tons, or nearly 26.7 to 28.3 mln 60-kg bags.

Thus, robusta coffee maturing in May/24 closed the trading session on March 28 at USD 3,474 per ton in London and continues to test highs. It has already sustained gains of 60% since October last year. Arabica, in the same period, has risen 28% and is currently trading below its maximum point, which was reached in December last year, above 200 cents. It is clear that it is robusta that is pulling Arabica up at the moment. The NY/London arbitrage for the May/24 maturity fell to 31 cents – meaning that the price of arabica is just 31 cents above robusta. This reinforces the idea of a highly valued robusta, as well as pointing to a very distorted ratio between coffee prices, which justifies changes in the industry’s blends.