Coffee surge led by Robusta
Arabica and Robusta coffee futures in New York and London recovered strongly to reach a three-month high on rising concerns the world may see a third consecutive deficit, led by a shortage of Robusta beans. Hence the reason why recent gains have been led by Robusta which following a second half slump last year went on to recover strongly last month, primarily driven by supply concerns. ICE monitored Robusta stocks have falling to 6,182 contracts or 61,820 tons, the lowest level since 2016 when contract rules were changed. In addition, Vietnam’s Statistics Office reported that exports from the world’s second biggest exporter of coffee, primarily Robusta, sank by 31% year-on-year in January to 160,000 tons. This coming on top of a forecast from coffee trader Volcafe, that the global 2023/24 Robusta market could see a record deficit of 5.6 million bags as Indonesia, the world’s 3rd largest producer is expected to see their 2023/24 production fall to a 10-year low due to damage caused by excessive rain.
Arabica coffee meanwhile jumped 6.7% on Tuesday, thereby increasingly signaling an end to the month-long correction which saw the price slump by 40% between August last year and January 11. Since then, the futures price has surged higher by 29% to reach a three-month high at $1.82/lb. The fundamental driver being a deteriorating outlook for coming season in Brazil with forecasts pointing to a small 2023 crop for the 3rd year in a row. Delayed harvests in Central America and worries about Peru’s next crop amid political unrest have added further upward pressure on the price.
Developments that have forced a major turnaround from hedge funds who in recent weeks have amassed the biggest net short in more than three years. It highlights the importance of watching the weekly COT update as a change in the technical and/or fundamental outlook can have an outsized price impact when positions are elevated.