Commodities: Coffee price soars to its highest level in nearly 10 years

RIO DE JANEIRO, BRAZIL – Concern with the supply of coffee in Brazil continues dominating business. Frosts and dry weather have compromised the 2022/23 Brazilian crop, which should have been larger than for 2021/22.

Rabobank forecasts a harvest of 63.5 million sacks for the season (42 million of Arabica and 21.5 million of Conilon), a volume similar to the 2016/17 cycle. Last year, Brazil harvested 72 million bags, 53 million of which were Arabica.

Production is also expected to be lower than initially forecast in Vietnam, the largest global producer of Robusta. According to Price Futures Group analyst Jack Scoville, the Vietnamese harvest is expected to total 29 million sacks – the previous projection was 31 million.

The Colombian harvest should range between 13 million and 13.5 million sacks, according to the country’s Coffee Growers Federation. The previous forecast was 14 million sacks.

Depending on the weather, estimates could drop even further. Days ago, the U.S. Oceanic Atmospheric Administration (NOAA) confirmed that La Niña is 90% likely to occur at the end of the year. The weather phenomenon usually reduces rainfall in Brazil’s Center-South, Colombia and Vietnam.

Coffee stocks on the New York exchange are down almost 400,000 sacks from the total recorded at the end of June. According to the Zaner Group, the decrease attests to improved demand and also to short-term supply constraints.

Demerara sugar also increased in the session. March papers were up 2.15% at 20.42 cents a pound, and the second-position papers, which mature in May, were up 1.8% at 20.08 cents a pound.

The Zaner Group says that the heavy rains in southern India’s sugarcane region are supporting prices, as they may slow down the harvest and affect productivity.

According to the consultancy, Indian sugar production in the 2021/22 harvest is expected to be slightly lower than in the previous cycle. Moreover, with local mills producing more ethanol, sweetener exports in 2021/22 should be below the 7.2 million tons in 2020/21.

The high price of ethanol in Brazil has been lowering the share of the sweetener in the country’s sugar-alcohol mix. The Brazilian Sugarcane Industry Association (UNICA) reported last week that cane crushing in the second half of October reached 17 million tons, 36.8% less than in the same period last year. Sugar production fell 50.6%, to 858,000 tons.

In cotton negotiations, contracts for delivery in March 2022, the most active today, rose 1.55% (172 points) and closed quoted at US$1.1692 per pound.

The cordial tone of trade talks between China and the United States earlier this week is sustaining the cotton market, with operators absorbing a potential rapprochement between the two countries – the Chinese are now the largest buyers of American fiber.

In addition, the U.S. Department of Agriculture (USDA) reported on Monday that the U.S. harvest is slower than the average of the last 10 years. The work was concluded in 65% of the area, below the average for the period, of 67%.

In the fundamentals, the International Cotton Advisory Committee (ICAC) yesterday maintained its forecast for world cotton production in 2021/22 at 25.7 million tons. The volume represents a 5.9% growth over the previous cycle.

Of this total, India should account for 5.9 million tons and China for 5.7 million. U.S. production, which guides prices in New York, should reach 3.96 million tons. Brazil, with 2.7 million tons, and Australia, with 608,000, complete the major exporters list.

On the other hand, the ICAC decreased its consumption forecast for the cycle from 26.04 million to 25.63 million tons. If the projection is confirmed, it will represent a drop of 0.12% in relation to the 2020/21 season. Trade should retreat 4.25% between the seasons, to 10.1 million tons.

As a result, projections for ending stocks for 2021/22 rose from 19.88 million tons at the beginning of the month to 20.46 million tons, a volume 0.54% higher than that recorded at the end of 2020/21.

Also on a day of appreciation, cocoa futures contracts for March, the most liquid, rose 0.6% to US$2,568 per ton.

The world’s major economies have been gradually recovering from the woes caused by the Covid-19 pandemic, which is improving the outlook for increased demand for chocolate and thus pushing cocoa prices higher.

Last week, the Ivory Coast Coffee and Cocoa Exporters Group (GEPEX), which comprises the world’s largest grinders, reported that 53,900 tons were processed last month, a volume 8.2% higher than in October 2020.

In Brazil, industries linked to the National Association of Cocoa Processing Industries (AIPC) processed 20,100 tons of cocoa last month, up 2.2% from October last year, according to data from SinDidados – Campos Consultores compiled by the entity.

According to Dow Jones Newswires, a number of exporters in Nigeria suspended purchases of the bean last week and said they will return to business once prices stabilize.

On another front, the Zaner Group points out in a report that heavy rain in West Africa, although beneficial for future production, may hinder the transportation of grains in the short term.

As a result, by the end of the year, shipments to the Ivory Coast ports, the world’s largest producer, may remain below last season’s volumes.

Frozen concentrated orange juice (FCOJ) was the only one among the “soft commodities” traded on the New York Stock Exchange to close the day down. Contracts for January, which are currently the most traded, fell 0.3% to US$1.3195 per pound.

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