Wednesday 29 June 2022

Arabica coffee futures rally again on frost threat in Brazil

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MILAN – Arabica coffee futures surged by more than 5% Monday on threat of frost in some coffee growing areas of top producer Brazil this week. The most active contract for July delivery rose by 1,090 points to reach a 3-week high of 224.80 cents. In London, the contract for July delivery gained $47 to close the day at $2,087.

According to weather forecasts, a cold front Wednesday will advance to Minas Gerais, potentially producing frost and damaging coffee crops in the main Arabica coffee districts of Southeast Brazil

While severe cold weather events across the Brazil coffee belt are relatively rare, the frost occurrence that took hold end July last year, was extensive in both the areas affected and the severity of coffee tree damage at the time.

This remains a fresh memory within the international coffee industry, as well as the directionally influential market participant speculative investor sector, observes I. & M. Smith in a recent report.

Both the speculative sector and coffee industry participants will be monitoring the weather forecast as winter months progress through August. This will potentially add further volatility to the coffee futures markets, in the short to medium term.

Brazil’s 2022/23 crop has been forecast at an average estimated median of 63.50 million bags of 43 million of Arabica. In its first official estimate, Brazil’s National Supply Company (CONAB) pegged this year’s coffee crop at 55.7 million bags, of which 38.7 million of Arabica. CONAB will issue its second forecast on May 19th.

Sales of Brazil’s 2022 coffee crop remain timid and hit 31% of production potential, said Safras & Mercado in its latest report.

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