Coffee markets heat up as torrid weather, supply risks drive prices to 15-year high

Robusta coffee futures on the Intercontinental Exchange (ICE) reached their highest price in at least 15 years, capping off a week of strong gains. The 12 per cent weekly rise was driven by concerns about unfavourable weather conditions and by farmers in key producing regions holding off on selling their beans, in the hope of fetching a higher price later. This combination of factors has put upward pressure on prices, with speculation about how high they could go adding to the bullish sentiment.

March robusta coffee futures closed the day 1 per cent higher at $2,825 per metric tonne, following an intraday peak of $2,860. This represents the highest price for March robusta coffee futures since they were launched in January 2008.

One of the major drivers of the robusta coffee price rally has been the lack of offers from farmers in Brazil, the world’s third-largest robusta exporter. Farmers are holding back on selling their beans, expecting prices to rise further as a result of dry conditions in robusta-producing regions. This has caused supplies to tighten, leading to speculation about a potential shortage and putting upward pressure on prices.

In addition to the dry conditions in Brazil, the crop outlook in Vietnam, the world’s largest robusta producer and exporter, has also raised concerns. Co-operative Cooabriel, a major producer of robusta in Brazil, has said that the next crop could be at least 15 per cent smaller than previous harvests, due to the dry and hot weather conditions.

Meanwhile, farmers in Vietnam are also refraining from selling their crops in the hopes of securing higher prices in the future. This further tightens supplies, and adds to the upward pressure on prices.

On the other hand, March arabica coffee futures on the ICE retreated slightly, falling 1.3 cents, or 0.7 per cent, to $1.893 per lb. The price had reached a seven-month high of $1.9450 the previous day, on Thursday, before dropping back. Despite the slight pullback, the contract still posted a gain of 6.8 per cent for the week, reflecting strong demand for the commodity.

Meanwhile, the March raw sugar contract on the ICE ended the day down 0.19 cents, or 0.9 per cent, at 21.99 cents per lb. The contract had hit an 8-1/2-month low of 21.16 on Thursday, before edging up slightly. In total, the contract lost 5.8 per cent over the course of the week, reflecting a number of factors impacting the sugar market.

March white sugar was down  $3.80, or 0.6 per cent, at $626.80 a tonne.

According to the Indian Sugar Mills Association (ISMA), the country is likely to produce 32.5 million tons of sugar in the 2023/24 marketing year, which began on October 1. This represents a significant increase on the previous marketing year, when production was estimated to be around 30 million tonnes.

In addition to the forecast for increased sugar production, the Indian government has also announced a change in policy regarding the production of ethanol from sugarcane juice. Under the new policy, sugar mills will be allowed to produce ethanol from sugarcane juice during the off-season.

In addition to the sugar supply situation in India, another factor that has weighed on the sugar market is the stronger-than-expected production in Brazil, the world’s largest sugar producer. Brazil’s Center-South sugar output is estimated to be around 40.5 million tons in the current season, up from an earlier forecast of around 38.4 million tonnes. This increased production is likely to put further downward pressure on sugar prices in the coming months.

Cocoa prices ended the day on a down note, with the dollar’s strength prompting some investors to liquidate their long positions after a three-month rally. However, the outlook for tight global supplies remains a key factor supporting prices. The combination of factors, including strong demand from Asia, the adverse weather conditions in key cocoa-producing regions, and an expected drop in output from Cote d’Ivoire and Ghana, the world’s largest cocoa producers, has kept prices on an upward trajectory.

While London cocoa futures ended the day up slightly, the contract still recorded a 4 per cent loss for the week, as investors took profits after a recent rally that saw the March futures contract hit a record high of 3,581 pounds a tonne at the beginning of the week. March New York cocoa also traded lower, dropping 0.5 per cent, to $4,244 per tonne.

A key data point that has weighed on cocoa prices recently is the grind data from Ivory Coast, the world’s top producer. The Ivory Coast’s cocoa grind, which measures demand for cocoa, was down 16 per cent year-on-year in November, according to industry data. This was the lowest level for November since 2014, indicating weaker demand for cocoa in the country.