Why Are Robusta Coffee Beans Reaching Record Futures Prices?
International robusta futures set a new all-time high, with the benchmark contract gaining nearly 6 percent, or $178 per ton, in a single session. It was the second record this month. Low inventories, tight supply from major producing countries, and disruption to Red Sea shipping drove the rally, while arabica rose 4.5 cents per pound, up 2.5 percent.
Vietnam's agriculture ministry projected El Niño drought could cut its 2023/24 output by 10 percent, about 3.8 million bags, to 27.5 million bags, and high prices have made farmers reluctant to sell. Brazil's 2024 crop outlook remains uncertain, Uganda's exports were disrupted by heavy rain, and armed attacks in the Red Sea pushed freight rates higher.
Recently, the international coffee futures market has once again experienced dramatic fluctuations, with the benchmark Robusta contract breaking through its previous high with a gain of nearly 6%, setting a new all-time record. This is the second time this month that the peak has been reset, driven by a combination of bearish factors including low inventories, tightening supply from major producing countries, and disruptions to Red Sea shipping. Vietnam faces reduced output due to El Niño-related drought, Brazil's production uncertainty is rising, Uganda's exports have been disrupted by heavy rains, and armed attacks in the Red Sea have further hindered Robusta bean shipments and pushed freight rates higher. This article will outline the key threads driving this round of price increases to help coffee enthusiasts understand the current tense state of the international market.
Recently, both major coffee futures contracts posted gains. Arabica rose 4.5 cents per pound, up 2.5%; Robusta surged $178 per ton, a gain of 5.96%, once again reaching an all-time high. In fact, tight global Robusta supply had already pushed prices to a record in early January, and this latest rally at month's end set yet another all-time peak. Low inventories, tight supply, and the Red Sea shipping crisis form the core drivers of this round of gains.
Production and Export Issues
Vietnam's Ministry of Agriculture previously projected that El Niño would bring drought conditions in early 2024, potentially reducing Vietnam's coffee output by 10% in the 2023/24 crop year — a decline of 3.8 million bags, bringing total production down to 27.5 million bags. Meanwhile, continuously rising prices have made Vietnamese farmers reluctant to sell, as they hope to sell at higher prices for greater returns. In Brazil, according to the country's National Coffee Council, although there was some rainfall during the cherry development stage, both its duration and volume were inconsistent, leaving Brazil's final 2024 production full of uncertainty. Uganda's Coffee Development Authority also stated that heavy rains disrupted picking and drying operations in some producing areas, dealing a blow to production and exports.
Low Supply and Inventory Issues
Global Robusta supply is generally low, while coffee demand continues to grow, with multiple regions reporting tight inventories. London Robusta certified stocks have fallen to 31,130 tons, the lowest level in recent times. In addition, of the 120,000 tons of coffee beans Vietnam exported earlier, half were to fulfill orders from the previous crop season. This year, an estimated 80,000 to 150,000 tons of coffee beans cannot be delivered on schedule and can only be deferred to the next crop season.
Red Sea Situation
The Red Sea situation is the most severe issue recently. Houthi armed forces have continued launching attacks in the Red Sea and near the Bab el-Mandeb Strait in the Gulf of Aden, making it difficult for Robusta coffee beans from Vietnam, Indonesia, Uganda, and India to reach European and American consumer markets quickly. Many traders and shipping companies have been forced to suspend transport or reroute around the Cape of Good Hope, and are imposing a "war risk surcharge." Although the United States formed the "Operation Prosperity Guardian" escort coalition in mid-December last year, it has achieved little. Joint U.S.-UK airstrikes against the Houthi armed forces not only failed to ease the situation but further escalated tensions. Global shipping consultancy firms accordingly predict that, affected by conditions in the Red Sea and the Suez Canal, spot freight rates on relevant routes will continue to climb in the coming weeks.
The above content is compiled by CoffeeHunters, a coffee news website.
