Coffee Market Update: 11/19/16

With several developments in the coffee trade and the market making a significant movement this morning, this is a good time to take a look at what’s happening and why.

  • Coffee’s sharp rise today seems most directly attributable to the rise in the Brazilian Real.  Currency considerations always profoundly impact coffee prices, and the Real has been at historic lows against the Dollar for most of the year. We have seen several developments in the political and economic crisis in Brazil that have allowed the Real to regain about 3.3% of its value against the Dollar this week.  Most critically, the Brazilian congress has approved embattled President Dilma Rouseff’s spending restriction plan.  In addition, Lower House Speaker Eduardo Cunha announced that he will postpone a decision on whether to begin impeachment proceedings against Rousseff until next year.  Obviously the situation in Brazil is still unstable and bears close watching.
  • Also of note this morning, the International Coffee Organization (ICO) released their latest report, showing that worldwide coffee exports fell to a five-year low in 2014-15.  Total exports were 110.7 million bags, with Arabica shipments down 1.9% and Robusta 4.9%  Columbian milds bucked the trend with an 11.6% increase in exports, and Brazil showed a 1.8% increase to 36.3 million bags – the largest volume on record.  But Vietnamese exports were down a whopping 19.2%, driven by the drop in Robusta prices.
  • Separately, the US Department of Agriculture lifted its production 2015/16 forecast for Colombia to 13.4 million bags, a 23-year high.  While concerns about El Nino draught remain, it appears worried about sever draught did not materialize – and in fact, mild draught may have had a beneficial impact in reducing the spread of Roya (Coffee Rust) fungus disease.  We discussed the Colombian market in detail earlier, sharing some insights from our trip there in October. With Roya and coffee borer infestations relatively mild at the moment, the biggest challenge facing Colombia right now is a rise in labor costs.  As Colombia’s economy improves and wages rise, along with an agricultural labor shortage, labor has increased to almost 60% of production costs.
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