Coffee Market Analysis Report (03-07 October 2024)
KEY DEVELOPMENTS AND TRENDS
1. European Union Deforestation Regulation (EUDR) Impact: The impending enforcement of the EUDR, scheduled for 30th December 2024, has caused significant uncertainty across global coffee supply chains. Due to extended ocean shipment times, especially amidst global logistics and geopolitical disruptions, coffee producers need to ensure compliance with the EUDR to avoid the risk of rejected shipments at European ports. Coffee from producer countries that does not meet compliance could face delays or outright rejection. However, the European Commission recently proposed a 12-month delay in the regulation’s implementation, citing the need for more preparation time for third countries, EU Member States, operators, and traders. This delay, still awaiting approval from the European Parliament and Council, could provide some relief to small-scale coffee producers struggling to meet the new requirements.
2. Coffee Stock Levels and Market Movements: The certified washed Arabica coffee stocks in New York stood relatively steady around the 800,000-bag level during early October. As of 3rd October, stocks totaled 801,344 bags, with nearly 98% held in Europe. The majority of these stocks are from Brazil (47.27%) and Honduras (14.91%). By 7th October, stocks had increased slightly to 804,576 bags, but Brazilian coffee stocks showed a slight decrease in proportion. In contrast, Honduras’ share of certified stocks saw a slight uptick.
The London-New York arbitrage (the price differential between robusta and arabica coffee) fluctuated during this period. On 3rd October, the arbitrage widened to 24.67 Usc/lb (a 9.62% discount for London robusta). By 4th October, this differential had expanded further to 28.82 Usc/lb (11.44% discount for London robusta). However, the trend reversed on 7th October, with the arbitrage narrowing to 27.51 Usc/lb (10.69% discount), indicating a slight recovery for robusta prices relative to arabica.
3. Commodities Market Performance: Global commodities markets experienced mixed outcomes in early October. Oil markets saw volatility due to escalating geopolitical tensions in the Middle East, pushing prices higher. Key agricultural commodities like corn, soybean, and wheat faced softer trading. Coffee prices also experienced downward pressure during early sessions but managed to rebound by the end of the week. The overall sentiment was influenced by the strengthening US Dollar, which traditionally exerts bearish pressure on commodities traded in other currencies.
4. Brazil and Vietnam Coffee Exports: Brazil’s coffee exports surged in September, up 36.79% year-over-year to over 4 million bags, driven by strong demand for Brazil’s robusta (Conilon) coffee. These figures are expected to continue growing despite export bottlenecks. In contrast, Vietnam, the world’s largest robusta producer, registered a modest 3.05% year-on-year increase in September exports, although cumulative exports for the coffee year (October 2023 to September 2024) were down 12.26%, reflecting the lower availability of robusta coffee due to poor production during the 2023/24 season. Nevertheless, Vietnam’s coffee revenue surged by 37.80% for the first nine months of the year, totaling $4.30 billion, primarily driven by high market prices amid reduced supply.
Looking forward, both Brazil and Vietnam’s coffee-growing regions are expected to receive rain in the coming weeks. In Brazil, the rainy season is essential for flowering, which will set the 2025/26 crop. Similarly, in Vietnam, rain could delay the harvest of the new 2024/25 crop, potentially affecting robusta availability in the short term.
5. Commitment of Traders Reports: The New York arabica market saw a slight reduction in the net long position of non-commercial speculative traders, down by 2.21% as of 1st October, reflecting cautious market sentiment. Conversely, speculative managed money in the London robusta market increased their net long position by 6.65%, but subsequent trading likely saw this decrease as the market softened.
MARKET SENTIMENT AND OUTLOOK
The global coffee markets faced a challenging early October, marked by fluctuations in stock levels, regulatory uncertainty, and the broader impact of macroeconomic conditions. The proposed delay in EUDR implementation has provided some optimism for the industry, though the lingering uncertainty still affects strategic planning for many producers and traders. Meanwhile, the strengthening US Dollar continues to pressure coffee and other commodity markets, particularly as geopolitical tensions and weather conditions create additional variables.
The Brazilian and Vietnamese export data reveal contrasting trends, with Brazil benefiting from higher shipments, while Vietnam’s production challenges have led to reduced exports despite higher revenue. These factors will likely continue to influence global coffee prices in the months ahead.
The overall sentiment suggests that while short-term disruptions may cause fluctuations, the market is gearing up for a period of stabilization, particularly if weather conditions in key producing regions improve and the proposed EUDR delay is confirmed.
