A volatile week as both arabica and Robusta prices were influenced by macroeconomic factors and continued to trend downwards. Arabica dropped to a 6-week low, and Robusta dropped to a 1-month low before prices for both recovered sharply yesterday in New York and London.
Arabica
Arabica prices were volatile for the week, again flirting with a break out above the 180 USC/lb level but unable to maintain momentum due to the impact of global financial events. Despite falling to a 6 week-low on Wednesday in New York, the uptrend did seem to reassert itself the following day as investors poured money back into the market. The closest contract for arabica for May ’23 (KCK23) posted a modest 2.87% gain of USC 5/lb by close on Thursday in New York.
Robusta
Robusta prices continued their modest downtrend, closing following the action of arabica contracts in response to macroeconomic factors this week. Prices for the May 23 RMK23 Robusta contract fell by USD $109/kg (5%) this week, before recovering to post a modest loss of USD $64/kg (~3%) for the week, at close in London overnight.
Market Events
Early in the week, a weaker Brazilian Real, which traded at a 2 ½-month low against the US Dollar encouraged export selling on the part of producers as they sought to take advantage of favourable foreign exchange rates. Some speculators also left commodity markets seeking safer havens for investments after the market volatility caused by the Silicon Valley Bank collapse and reports of issues at Credit Suisse. Prices for both contracts rebounded sharply overnight in New York and London as a drop in the US dollar sparked short covering. Easing global banking concerns due to the announcement of bail-out packages for both Silicon Valley Bank and Credit Suisse also saw investors moving back to riskier assets such as commodities.
Fundamentals continue to be mixed, however. SAFRAS & Mercado; a major agribusiness consultancy in Latin America, raised its estimate for Brazil’s 2022/23 production by 1.6 million bags. Export reports from Honduras continued to be positive also, with a 32% year-on-year increase being recorded for February. Both factors are bearish indicators for coffee prices.
On the flip side, International Coffee Organisation (ICO) predictions of a global deficit for the 2022/23 harvest, tightening inventories in ICE and US warehouses, the return of heavy rains in Minas Gerais, and the seeming certainty of smaller Robusta supplies, all serving as bullish indicators for coffee prices.
The information contained in this blog is intended to be general in nature and should not be taken as constituting professional financial advice. It does not take into account your objectives, financial situation or needs. We recommend seeking independent financial advice before acting on any of the information contained within.
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