Wednesday 21 February 2024

Arabica futures prices on a rollercoaster ride amid fears of supply disruption

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MILAN – Arabica coffee futures fell sharply in the last two sessions from a 2-1/2 month high in the mid-week session. The benchmark contract for May delivery plummeted to a week low of 115.85 down 1,410 point from a peak of 129.95 cents on Wednesday.

Thursday’s data from the ICE exchange showing that there were 40,157 bags of coffee awaiting assessment from the exchange to be included in warehouse inventories contributed to the sell-off.

Arabica futures prices continue to be under pressure by concern about weaker demand due to the Coronavirus pandemic and the shutdown of many restaurants, cafes, and bars around the world.

A further negative factor for Arabica coffee was the weakness in the Brazilian real against the dollar.

A supportive factor for Arabicas is fear of supply disruptions in South America. Traders are encouraging consumers to secure supplies ahead of possible shortages.

Now possible labor disruptions – particularly where bean picking is labor intensive such as Central America and Colombia – are giving further price support.

Brazil’s Sao Paulo state began a 15-day quarantine Tuesday. Columbia has put its entire population on a 3-week lockdown. In recent years, Venezuelan migrants have become an important part of the Colombian workforce. Now that border has closed.

“So far things are okay, but the harvest is yet to start,” said Roberto Velez, chief executive officer at the Colombian Federation of Coffee Growers said in an interview with Bloomberg, referring to the mid-crop collected from April. “We are yet to coordinate with authorities on permission for pickers to move freely.”

While a Colombian presidential decree states that people involved in agricultural supply chains have free mobility, some mayors are contravening that, said Manuel Rueda, general manager of Integra Trading SAS.

Brazil, the world’s top exporter of arabica beans, won’t start the 2020-21 harvest until May. Colombia is the second-largest arabica supplier, followed by Honduras.

In Honduras, exporters have special government authorization to continue operating and “are doing so” said Miguel Pon, executive director of Adecafeh, the country’s main exporter association, reports Bloomberg.

“The government has extended the absolute curfew until March 29 and this week will be crucial to learn of new cases of COVID-19 and what new determinations the government will make,” he said.

Central American countries “have very little coffee,” said Ernesto Alvarez, managing director for Coex Coffee International in Miami. “I see a problem that is now getting worse. Coffee inventory is flying.”

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