Why is coffee production driving futures to a record high?

U.S. C-type coffee futures closed at 279.35 cents per pound after an intraday high of 284.93 cents, a new record. The rally reflects drought and fires in major South American growing regions, the one-year delay of the EUDR, limited benefit from Brazil's rainy season, hurricane season in the Americas, a stronger dollar after the U.S. election, and Red Sea shipping disruptions with rising container freight rates.

Back in late September, futures had already reached 273.4 cents, breaking a decade-old record, driven by droughts and wildfires in Brazil and Colombia. In October the European Commission proposed delaying the EUDR to 2025, and the European Parliament later approved a 12-month delay, which cooled stockpiling. Traders still expect tight global supply to keep prices high in the short term.

The U.S. C-type coffee futures price has once again hit a new record, reaching a high of 284.93 cents per pound and finally closing at 279.35 cents per pound. Behind this rally is a mix of multiple factors: drought and fires in major South American producing regions, the postponement of the EUDR regulation, the limited effect of Brazil's rainy season, the impact of the hurricane season in the Americas, the strengthening of the U.S. dollar driven by the U.S. election, and the Red Sea crisis along with rising container freight rates. Although the EU has approved a one-year delay in implementing the EUDR, market concerns about tight global coffee supply have not faded, and futures prices are expected to remain high in the short term.

In today's closing session, the U.S. C-type coffee futures, the price benchmark for the coffee bean industry, climbed sharply once again, reaching an intraday high of 284.93 cents per pound and finally closing at 279.35 cents per pound, setting a new all-time high.

As early as the end of September this year, U.S. C-type coffee futures had already risen to 273.4 cents per pound, breaking the price record of the past decade at that time. It is understood that the main reason driving prices higher at that time was that several South American coffee-producing countries suffered severe droughts and wildfires, with Brazil and Colombia, the world's most important coffee producers, bearing the brunt, triggering market concerns about coffee output and thereby pushing up coffee futures prices.

However, in October, the European Commission announced plans to postpone the implementation of the "EU Deforestation Regulation (EUDR)" by one year to 2025. After this news emerged, European buyers slowed their previous large-scale stockpiling of coffee beans, and Arabica and Robusta coffee futures prices subsequently fell to varying degrees.

According to the latest media reports, the European Parliament voted on November 14 to approve a 12-month delay in implementing the "EU Deforestation Regulation (EUDR)" and passed a series of amendments to weaken the law. Although the EUDR has been confirmed to be delayed by one year, many international coffee traders still believe that the postponement of the EUDR cannot offset the tight global coffee supply situation, and the market still needs to closely monitor changes in supply and demand.

Recently, Brazil has entered its rainy season after experiencing severe drought. Although the rainfall has alleviated some of the threats brought by the drought, several coffee institutions have said that the current rainfall can help severely water-deficient soil recover moisture, ease pressure on coffee tree roots, and provide some benefit to coffee production, but it cannot compensate for the damage caused to some coffee trees by drought and fires. In some severely affected areas, production may fall by 20% to 30%, with overall output declining by 6.8%.

In addition, Brazil's meteorological department recently predicted that Brazil's main coffee-producing regions may once again enter a dry, rainless climate in the coming days, further intensifying market concerns about Brazil's future coffee production.

At the same time, June to November each year is the hurricane season in the Americas. According to the U.S. National Oceanic and Atmospheric Administration (NOAA), the 2024 hurricane season is expected to be "extraordinary," with an 85% chance of being stronger than normal. Facts have also confirmed this prediction: this year's hurricane season has not only affected North America but also Central and South America.

According to reports, coffee-producing countries such as Colombia, Costa Rica, Honduras, and Panama have all been affected by hurricanes, experiencing heavy rainfall, floods, and landslides, which have impacted the development of the coffee industry and the supply chain, further pushing up prices.

In addition, the recent U.S. election has also affected futures price fluctuations. During the election period, the U.S. dollar had already shown an upward trend, and after Trump announced his victory, the U.S. dollar index began to surge wildly. On the evening of November 14, the U.S. dollar index reached a high of 107.06, setting a record high. Coffee is a commodity priced in U.S. dollars, and a stronger dollar means that the cost of importing coffee priced in other currencies increases. Importers need to pay more of their currency to buy the same amount of coffee, which leads to higher coffee prices.

On the other hand, geopolitics and the Red Sea crisis have persisted for a year since last November and have continued to push coffee prices higher, all because coffee transportation relies heavily on maritime shipping. The Red Sea crisis has led to higher transportation costs and longer transit times on multiple routes, and several African countries have also seen price increases due to the impact of the Red Sea crisis, which has likewise pushed up coffee prices.

Recently, container shipping prices have risen again, mainly due to factors such as congestion and strikes at some ports on Europe-U.S. routes. In addition, as the Christmas season approaches, there has been a wave of shipments for foreign trade orders, leading to a shortage of containers. This has also raised coffee transportation costs and driven coffee prices higher.

Taken together, these conditions and news items have continuously pushed coffee futures prices higher. The EU has already approved a one-year delay in implementing the EUDR, but based on the influence of other factors, coffee futures prices may remain high in the short term.

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The above content is compiled by CoffeeHunters, a coffee news website.