Moderate and humid rainfall conditions are good for coffee growth but dry conditions have a negative impact on coffee yields despite helping to speed up the harvest, which has been running slightly behind normal.
Yesterday’s coffee prices were slightly higher and consolidated after 5 consecutive days of sharp declines triggered by Brazil’s previous freeze, however these conditions have eased a bit. In addition, the International Coffee Organization (ICO) on Monday raised its 2020-2021 coffee surplus forecast by +12% to 2.26 million bags from its previous estimate of 2.02 million bags.
According to a report by Safras & Mercado last week, Brazil’s 2021/22 coffee harvest was 48% complete on June 29, matching last year’s levels but slightly behind the 5-year average of 51%. However, the recent depreciation of the Brazilian Real has affected the selling price of coffee.
Concerns about the reduced supply of Robusta coffee from the world’s largest Robusta producer, Vietnam, support soft commodity’s price. A shortage of shipping containers in Asia has limited Vietnam’s Robusta exports, with the Vietnam General Statistics Office reporting last Tuesday that Vietnam’s June coffee exports fell -13.8% y/y to 110,000 MT and cumulative Jan-Jun coffee exports fell -12.3% y/y to 825,000 MT. In addition, the price of Arabica coffee was cut due to coffee supply concerns from the world’s second largest Arabica coffee producer, Colombia. The CEO of the National Federation of Colombian Coffee Growers recently said that Colombian coffee exports have resumed, although it may take two months to catch up with delayed shipments. Colombia’s May coffee exports fell -52% y/y to 427,000 bags after recent bottlenecks prevented producers from shipping their beans to ports, including protests against the Colombian government’s new tax reform law announced in April.
Technical Level
Coffee posted a brilliant strong performance in Q2 2021 with a growth of +28% compared to Q1 2021. Currently the asset has actually weakened -3.4% as it has traded neutral since June and is now traded flat. This agricultural commodity is consolidating within the 150-166.20 area. Notable is that 165.30 was 2015’s opening price, while the Q2 price peak this year is perched at 166.20.
In the last 5 days the price started to depreciate from the second peak of 163.90 and is currently trading slightly up in the 150.00 price range. Even though the price is below the 26-day MA, the support at 146.60 is still holding back the fall. CCI 14 and 50 are respectively below the 0 point and the AO convergence validates the weakness in recent days. The support of 146.60 is the key to the continuity of the trend and whether it will go back up and consolidate at the top of the price or there will be a break of the level. A break would send the commodity to the price of 143.40 and then the past resistance around 140.00.
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Ady Phangestu
Market Analyst – Educational Office – Indonesia
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