Coffee has seen an abrupt change in fortune during the fourth quarter, as it reached a nine-month low in early October before turning sharply higher. The market punctuated a second monthly gain in a row with a strong rally on Thursday, and then followed that with a move to a new 4 1/2-month high early Friday. However, it may have gotten ahead of itself, and it could see a setback over the next few weeks.
The 20.05 cent rally in March Coffee from last Friday’s close to this Friday’s high has been fueled in part by a sharp decline in ICE exchange stocks. ICE has changed its delivery rules, and it will no longer allow older coffee that has been removed from warehouses to be resubmitted for grading. The new rule went into effect on December 1, and there was a 69,000-bag decline on Wednesday and Thursday, ahead of the deadline. This left ICE stocks at a 24 1/2 month low.
Despite concerns about the weather (with recent storms coming on top of periods of extreme heat affecting the flowering period), many analysts are projecting Brazil’s upcoming 2024/25 Arabica crop to show an increase from 2023/24. Safras & Mercado is forecasting a crop of 69-71 million bags, up from 66.65 million in 2023/24. Arabica production is expected to come in at 46-47 million bags versus 43.5 million in 2023/24. Earlier this week HedgePoint Global Markets had a forecast of 72.24 million bags, with Arabica production at 48.31 million. The larger Brazilian production would offset supply problems in Colombia and Central America, and it could result in a global production surplus for 2024/25.
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Originally Published December 1, 2023
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