Why are arabica coffee prices staying high right now?
Arabica coffee prices have climbed as Brazil's Minas Gerais state, which supplies about 30 percent of the crop, recorded rainfall of only 30.9 millimeters in a week, roughly 59 percent of average. Even so, Safras & Mercado raised its estimate for Brazil's 2023/24 harvest from 58.9 million to 61.1 million bags.
Vietnam, the second-largest producer, has seen farmers hold back beans and default on pre-sold contracts, with Central Highlands coffee valued at 76 to 77 million Vietnamese dong per ton. Meanwhile NKG, the largest green coffee trader, announced new import, warehousing, and distribution operations in Indonesia, aiming to cut shipping cost and time through intra-Asian trade.
Recently, global coffee market prices have remained high, with major producing regions like Brazil and Vietnam successively encountering climate and market issues. Combined with the Red Sea shipping crisis, traders are facing increasing operational pressure. Below-average rainfall in Brazil has pushed up Arabica prices, but production estimates have been revised upward; Vietnamese coffee farmers are reluctant to sell, and contract defaults are frequent, compounded by El Niño drought expectations, the new crop output may decline. Meanwhile, NKG, the world's largest green coffee trader, has announced the expansion of import, warehousing, and distribution operations in Indonesia, targeting the country's rapidly growing consumer market and hoping to reduce shipping costs and time through intra-Asian regional trade.
Recently, international coffee market prices have remained at a relatively high level, driven by successive problems in multiple coffee-producing countries and the chain reactions from international events. Many coffee traders admit that they are currently facing numerous difficulties in their operations.
Looking first at Brazil, a report from local information agency Somar Meteorologia shows that in Minas Gerais state, which accounts for 30% of Brazil's coffee production, rainfall over the past week was only 30.9 millimeters, equivalent to 59% of the average. As a result, Arabica coffee prices have shown an upward trend. However, Safras & Mercado recently revised its estimate for Brazil's 2023/24 coffee crop upward from the previous 58.9 million bags to 61.1 million bags.
However, Brazil's production increase is not enough to make up for supply gaps in other countries, especially Vietnam, the second-largest coffee-producing country. Recent reports indicate that Vietnam's coffee market has fallen into chaos. Currently, coffee in the Central Highlands of Vietnam is valued at 76-77 million Vietnamese dong per ton. Although it has not yet reached the previous high of 78 million Vietnamese dong, some traders believe prices could exceed 80 million Vietnamese dong in the future.
In addition, according to a recent Reuters report, many coffee farmers are unwilling to sell the coffee beans they hold, hoping to wait for prices to rise further before selling. Some farmers have even refused to fulfill previously pre-sold coffee bean contracts, hoping to renegotiate the sale price, causing some export sales to be delayed. Vietnam's Ministry of Agriculture earlier also predicted that due to the impact of El Niño, drought will occur in early 2024, so Vietnam's coffee production in the 2023/24 crop year may decline by 10%.
At the same time, the Red Sea issue continues to escalate. Multiple international shipping companies have announced the suspension of Red Sea routes or chosen to detour around the Cape of Good Hope. This has caused sea freight rates to continuously climb and transportation costs to increase significantly. The detour has also led to about three-week delays in coffee deliveries from major Asian producing countries such as Vietnam and Indonesia. Arabica inventories monitored by ICE reached a 24-year low of 224,066 bags.
Against this backdrop, Neumann Kaffee Gruppe (NKG), the world's largest green coffee trader, said it will expand its business in Indonesia by launching a new operation focused on coffee imports, storage, and distribution in the country. The new facility will be located in Jakarta. NKG Indonesia Import Company can leverage the resources of this center as well as NKG's exporter network to serve Indonesian coffee roasters.
According to data from the U.S. Department of Agriculture, Indonesia is the world's third-largest coffee producer, but the country's coffee consumption has been growing rapidly. NKG expects local consumption to soon exceed production, leading to increased imports. Therefore, it is launching a new business locally and hopes to reduce shipping costs and time through coffee imports and exports within Asia.
The above content is compiled by CoffeeHunters, a coffee news website.
