Arabica Coffee Drops to 7-Week Low With Buyers on Sidelines

(Bloomberg) -- Arabica-coffee futures slid to the cheapest seven weeks on signs of improving supplies.

In Brazil, the biggest producer and exporter of high-end coffee, local currency slumped against the dollar, which boosts incentives to sell raw materials priced in the greenback like coffee. In Central America, where the harvest is peaking, top shipper Honduras saw a surge in exports last month. That will somewhat ease concerns about supply deficits that drove up prices 76% in 2021.

Buyers are waiting on the sidelines as prices slide. 

“Roasters are on a holding pattern, hoping for market levels near $2 a pound,” Jorge Cuevas, chief coffee officer for Sustainable Harvest, an importer in Oregon, said in an emailed note. “The big question now is the pace of recovery of Brazil’s 2022 crop.” 

Cuevas added that high volatility is ahead given factors including weather and Covid’s omicron variant.

The March contract dropped as much as 2.5% to $2.2055 a pound on ICE Futures U.S., the lowest for a most-active contract since mid November. A rare premium of the contract over May is narrowing, which shows traders have less urgency to receive deliveries.   

Coffee prices soared last year as drought cut output in Brazil, and devastating frosts also cut the yield outlook for this season and probably next.  

The production woes will trigger one of the biggest world coffee deficits in memory, near the size of annual output in second-ranked arabica grower Colombia, where the crop is shrinking as well. Elevated freight rates amid lack of ships and containers and shipping delays have eroded margins across the industry.  

Arabica futures will see net selling during the annual rebalancing of commodity indexes taking place during the standard January index roll.

In other soft commodities, raw sugar and cocoa also slid, while cotton gained.

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