As the month and year, draws to a close, there are soon due to be further forecasts anticipated for the largest coffee producer country, and the next new arabica crop to come from Brazil. The U.S. Department of Agriculture (USDA) Foreign Agricultural Services have ahead of this, earlier forecast an estimated output in Brazil for the primarily natural process arabica current July 2023 to June 2024 coffee year to potentially attain an increase year on year of 5.10 million bags or 12.81% higher than the previous 2022/23 crop year. This latter year impacted by the 2021 frost which is thought to have removed a potential of between 7 to 10 million bags of potential production from that upcycle year. The prevailing 2023/24 crop is estimated to come in at an estimated total 44.90 million bags.

The new Brazil arabica coffee crop that is currently developing on the trees, would traditionally be considered a biennial lower production cycle year, albeit that many in the industry now consider that this on-year and off-year cycle has been upended as a result of the 2021 frost damage, and the husbandry methods such as skeletal pruning. Thus, the primarily natural arabica coffee crop that is gradually developing on the trees, has experienced mild winter weather and on average normal moisture levels as December approached. The cumulative rainfall reported October and November, on average above that of the same two months of the previous year, in the largest state of arabica production Minas Gerais, with a few weeks of excessively hot and drier weather experienced through to December. The outlook for the first two weeks of the new year is for a greater dispersion of rainfall across the vast coffee growing areas, which will by this first month of the next year, be required to support bean expansion for the biennial crop that is to follow in 2024/2025.

So long as the weather remains conducive, another biennial bearing larger arabica production output in Brazil may be attainable with cumulative rainfall on average through the year, higher on average than the bumper harvest of 2020/21 coffee year, when Brazil produced a record 51.50 million bags of natural arabica coffee. The USDA has not provided their estimate for the 2024/25 arabica crop to come, but in this respect, early forecasts for this mostly natural arabica Brazil coffee crop may soon be anticipated to start to filter into the markets. The extent of the summer rainfall in the arabica growing areas that for the most part lack supportive irrigation, will continue to be monitored into the new year. The collective reports of rainfall indicate a slightly above average to normal median over the 2023 calendar year, albeit generalised across the expansive south eastern regions of arabica production, and more sufficient moisture is required in the months ahead.

Brazil arabica exports have reported month on month increases in the 2023/24 coffee year and are expected to remain strong during December. The Coffee Exporters Association in Brazil Cecafé reported that the countries arabica coffee exports for the month of October were 8.02% higher than the same month last year, at 3.42 million bags and 3.24 million bags for the month of November, on par year on year. This has resulted in cumulative exports of arabica coffee for the first five months of current 2023/24 coffee year to be marginally higher year on year at a total of 13.94 million bags.

Africa’s largest coffee producer and consumer of coffee, Ethiopia, will potentially produce 7.65 million bags arabica coffee for the current October 2023 to September 2024 coffee year. This country having a vibrant domestic consumption that it is estimated at approximately 3.50 million bags per annum, makes it a little more difficult to pin the actual production figures, and disappearance year on year, however, the USDA estimate for production this year is 7.30% larger than the previous crop. Of the annual production it is considered that approximately 75% of the annual production is processed naturally, i.e. harvested, and dried in cherry. A growing number of washing stations in the country has contributed toward a gradual increase in the availability of washed coffees over time, these coffees ready for February shipment each year to reach consumer markets first, and natural coffees tending to have an extended preparation time and prepared for export by April/May each year. With the harvest now progressing, it is estimated that the country should be in a position to export approximately 4.15 million bags in the current October 2023 to September 2024 coffee year.

The position of Ethiopia in the context of El Nino weather impact has purportedly seen drier weather in the north of the country, whereas the southern areas have been subjected to similarly excessive rainfall as their neighbouring countries positioned closer or on, the equator in Africa. Weather conditions for the harvest is reported to have improved with some degree of optimism that the new year will bring less uncertainty in the coffee flow to the markets. Within the political sphere reports are that the peace holds within the northern regions, and that it is business as usual within the country. There remains a tight squeeze on foreign exchange, and perpetual logistical challenges which are at times contributory factors to export shipment delays from the country.

The overall estimated international demand for natural arabica coffee, has meanwhile registered a marginal recovery over the last three years, post the pandemic related drop in demand. At the outset of 2020’s natural arabica demand was reported at around 45 million bags, dropping slightly to 44 million bags through to 2022/23 coffee year, and is forecast to grow to around 48 million bags in the coming 2024/2025 coffee year. Brazil remains by far the largest coffee producer and exporter to consumer markets internationally, at an average over five years of 44% of global arabica coffee export market share. Brazil is now so far ahead in production terms and has seen coffee consumer markets become more dependent upon the continuity of supply from Brazil. This assists to illustrate the market focus on the prospects for success of the development of the coffee crop from this country each year and the reason that this is a source of supply focus to the coffee industry, as well as a directional influence for the more speculative and fund dominated sectors of the coffee futures markets.

In conjunction with the dominance that Brazil holds in the nation’s scale of coffee production, the performance of their Brazil Real currency against the US Dollar, which is the internationally accepted denomination of coffee trade, can play a part in coffee market directional influence. In this respect, the Brazil Real has shown a degree of muscle against the US Dollar over the past two months and has strengthened by 7.54% against the US Dollar during this time. A stronger Brazil Real traditionally discourages export selling from Brazil’s coffee producers, which could see a continued degree of internal price resistance and a reticence of producers to actively participate as sellers. The higher value reflected in the New York arabica market however, which has posted a 21.87% gain in the space of the last two months, boosted by the reports of drier weather in Brazil, has contributed toward a more active sellers' market within the interior, although well financed producers continue to hold out for target prices, the latest and mostly speculatively driven developments in the coffee futures markets, has provided some degree of support for sales, mostly with the prompt month inversion likely inspiring larger tranches of producer prompt delivery coffee offers, to the fore.

Earlier this year the market saw the futures contract arbitrage between the London and New York markets narrow considerably from around 40.75% to 27.40%, which allowed for a shift of some robusta demand to move to natural arabica coffees, although this was not sufficient to assist in covering the 2022/23 robusta deficit. Given the current tight robusta supply challenges and high-priced environment, a potential shift towards natural arabica coffees in the more flexible consumer roaster blends may be seen in the months to come. The prevailing contract arbitrage between the London and New York markets, registered at 34.19% yesterday in the middle of the current range.

In an overnight update, the world’s second largest shipping line Maersk has announced that it is preparing to resume shipping operations through the Red Sea. This follows the deployment of an international miliary operation to increase security for commercial ships transiting this area. The shipping line has however announced that they will continuously monitor and re-evaluate the situation to action diversion plans should the situation become unsafe for their vessels. Meanwhile, another shipping giant Hapag Lloyd announced yesterday, that it considers the shipping trade route still “too dangerous” at this stage and will continue to reroute its vessels via the Cape of Good Hope, adding around 3,500 nautical miles to many routings.

The Certified washed Arabica coffee stocks held against the New York exchange were seen to decrease by 971 bags yesterday, to register these stocks at 246,941 bags, with 97.79% of these certified stocks being held in, Europe at a total of 241,490 bags and the remaining 2.21% being held in the USA at a total 5,451 Bags. Of this, a total 45,172 bags, or 18.29% of the coffees registered and stored in consumer country certified warehouses of the exchange, are Brazil washed arabica, and a further 65.69% of these certified coffees, originating from Honduras. There was meanwhile 7,572 bags decrease to the number of bags pending grading to the exchange; to register 22,671 bags pending grading on the day.

The March 2024 to March 2024 contract arbitrage between the London and New York markets widened yesterday to register this at 67.61 Usc/Lb. This equates to 34.19% price discount for the London Robusta coffee.

It was a firmer day on the commodity markets yesterday, with the US Dollar index weakening to a five-month low. A weaker Dollar is seen to be a bullish factor for commodities traded in other currencies. The Coffee, Cocoa, Soybean, Gold, Silver and Platinum markets ended the day on firmer note, while the Corn, Sugar, Wheat and Palladium markets ended the day on a softer note. The day starts with the U.S. Dollar trading at 1.281 Sterling, at 1.111 the Euro and with the US Dollar buying 4.827 Brazil Real.

The New York and London markets started the day yesterday trading to the south of par, pressured lower during the early morning session to accentuate the losses in very light volumes of trade. Both markets attracted buying support during the late morning session to track mildly firmer for the remainder of the morning session, gaining momentum, as support was seen to build. As the afternoon progressed the New York and London markets continued to trend in a firmer direction, as trade volume began to pick up, albeit still light, the markets hit a ceiling to limit the gains for the day with sellers returning to the floor. This saw the New York and London markets drop back from the earlier highs. The London market dropped back from the highs of the day late in the session to settle on a firmer note with most of the gains intact, while the New York market settled on a likewise firmer note at the close, albeit back from the highs of the day.

The London market ended the day on a positive note with 66.67% of the earlier gains of the day intact, while the New York market ended the day trading on a likewise positive note with 60.71% of the earlier gains of the day intact. This firmer close for the markets, might provide some degree of support and direction, albeit that the New York market fell back from the highs of the day during the session, to possibly see the markets set for a follow through steady start to early trade today, against the prices set yesterday, as follows:

LONDON ROBUSTA US$/MT                 NEW YORK USC/LB.

MAR   2869 + 32                                          MAR   197.75 + 3.40
MAY   2812 + 46                                          MAY   195.35 + 3.40
JUL     2749 + 45                                          JUL     195.40 + 3.40
SEP     2705 + 43                                          SEP     196.00 + 3.35
NOV   2679 + 43                                          DEC    196.80 + 3.25
JAN    2656 + 43                                          MAR   198.30 + 3.60
MAR  2649 + 47                                          MAY    198.95 + 3.60
MAY  2642 + 47                                          JUL      199.35 + 3.55