Saturday 25 May 2024
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Coffee futures markets recover on weak dollar, dry weather conditions in Brazil, Vietnam

According to weather reports, Brazil's Minas Gerais region received no rainfall for three weeks. Rainfall levels have been insufficient in Vietnam: according to the National Meteorological Agency, the Central Highlands area recorded just under 200 mm of rain in the first ten days of May, more than 40% below seasonal averages

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MILAN – Coffee futures markets recovered on Tuesday, 14 May, on a combination of technical and fundamental factors. New York saw a significant rebound, while London recorded more modest gains. The main driving factors in both markets were weather conditions in Brazil and Vietnam, as well as a weakening dollar. In New York, the main contract for July delivery gained 480 points, returning above the $2 per lb mark, to settle at 200.85 cents.

The benchmark initially dropped to an intraday low of 192.75 cents. Technical factors discouraged further selling, prompting a speculative rebound that brought prices back into positive territory.

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Also providing support for prices on the fundamentals front was the weather situation in Minas Gerais, Brazil’s main producing state, where it hasn’t rained for three weeks.

Rainfall levels have also been insufficient in Vietnam: according to the National Meteorological Agency, the Central Highlands area recorded just under 200 mm of rain in the first ten days of May, more than 40% below seasonal averages.

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This helped support coffee futures prices in London, where Ice Robusta’s main contract for July delivery was $34 up (+1%) to close the day at $3.433. Domestic prices in Vietnam also partially recovered, rising above the VND100,000/kg mark in all major producing areas of the country.

Both futures markets are in backwardation reflecting tight supply conditions strong speculative tensions.

In other news, the United States Department of Agriculture USDA Global Agricultural Information Network has revised downwards its estimate of Guatemalan coffee production for MY2023/24 crop year, which is now pegged at 3.26 million 60-kg bags, slightly lower on-year. The report also cut its estimate for MY 2022/23 by a few thousand bags.

The reduction in the estimate is due to various factors, with the extended El Niño year being one of the main factors negatively impacting the 2023/2024 harvest.

Although it has been a relatively dry harvest season, rust is present in farms that are not well managed. The coffee borer continues to be an important pest as mature coffee falls to the ground and cannot be harvested given the permanent lack of labour (migration driven) affecting Guatemalan agriculture, says the report.

Exports are also slightly down on-year, coming in at 2.992 million, and set to remain largely unchanged next year.

Guatemala remains the world’s ninth largest coffee exporter and the fourth largest exporter of Arabica coffee.

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