Quarterly Outlook
Q4 Outlook for Investors: Diversify like it’s 2025 – don’t fall for déjà vu
Jacob Falkencrone
Global Head of Investment Strategy
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Arabica coffee prices pushing higher
Ole Hansen
Head of Commodity Strategy
Summary: Investors in Arabica coffee have long been awaiting an elusive bounce. Prices are currently challenging the 20-day moving average, suggesting that it might be drawing closer.
Both investors in Arabica coffee and those merely tracking the commodity have been waiting for a bounce for some time now, but the rally has remained elusive.
Following a higher low this week, however, the December contract is currently challenging the 20-day moving average at 99.89 cts/lb, a level it has not closed above for more than three months. A break above this point, confirmed by a close above 100.75 cts/lb, could potentially signal some upside next week.
Following a higher low this week, however, the December contract is currently challenging the 20-day moving average at 99.89 cts/lb, a level it has not closed above for more than three months. A break above this point, confirmed by a close above 100.75 cts/lb, could potentially signal some upside next week.
In the week to September 18, hedge funds held a record short of 109,000 lots, the equivalent of one-third of the total open interest and more than twice the average daily volume. However at this stage, given how far coffee has fallen during the past few months, it would require a bigger than the aforementioned move to trigger a proper short-covering rally. This is nevertheless worth keeping an eye on.
The recovery this week has primarily been driven by the bounce in the Brazilian real from its record low recorded a couple of weeks ago. Fundamentals, however, do not yet signal much of an improvement with Bloomberg reporting the following:
• “Excellent” flowering registers in Minas Gerais and Sao Paulo, signaling a plentiful crop for next year (this according to a Bloomberg interview with Regis Ricco Alves, director at RR Consultoria Rural in Varginha, Minas Gerais)
• Even trees with abundant output this year show ample flowering, defying the usual easing trend
• Some trees in Cerrado of Minas Gerais face stress from dry conditions, losing ~10% of their flowering potential
• Brazil may produce ~80% of the volume of Arabica coffee collected this year or the full potential, depending on favourable weather
• NOTE: Coffee enters in the lower-yielding half of a biennial cycle
• “Excellent” flowering registers in Minas Gerais and Sao Paulo, signaling a plentiful crop for next year (this according to a Bloomberg interview with Regis Ricco Alves, director at RR Consultoria Rural in Varginha, Minas Gerais)
• Even trees with abundant output this year show ample flowering, defying the usual easing trend
• Some trees in Cerrado of Minas Gerais face stress from dry conditions, losing ~10% of their flowering potential
• Brazil may produce ~80% of the volume of Arabica coffee collected this year or the full potential, depending on favourable weather
• NOTE: Coffee enters in the lower-yielding half of a biennial cycle
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