Coffee prices have surged to their highest level in a month, fuelled by growing concerns over Brazilian harvests. Recent limited rainfall in the country has significantly dampened the production outlook for Arabica beans.
Rabobank, a key financial institution providing analysis for agricultural commodity markets, indicated in a report last Tuesday that Brazil's Arabica output for the 2025/26 season is projected to decline by 13.6% year-on-year to 38.1 million bags. The lingering effects of last year's El Niño continue to be a factor. However, Robusta production is anticipated to reach a record high of 24.7 million bags, marking a 7.3% year-on-year increase.
Adding to the upward pressure is the notable weakening of the US dollar. The dollar is experiencing broad-based losses, including against the Brazilian real, which is curtailing export prospects. The latest available data from Cecafe for March reveals that Brazil's green coffee exports fell by 26% year-on-year to just under 3 million bags.
Interestingly, recent trading activity shows a marked reduction in open interest and net positions in coffee futures. This decrease is primarily driven by the unwinding of long positions. While liquidity levels are still far from the extremely thin conditions seen in the cocoa market, further declines in open interest, even through the liquidation of long positions, could potentially propel coffee prices higher.
Long positions in coffee are notably decreasing, while short positions remain at extremely low levels. Source: Bloomberg Finance LP, XTB
Coffee prices are currently testing the 400 cents per pound mark, their highest point in a month. A clear correlation between the Brazilian real and coffee prices has been evident since December. With tight supply conditions, reduced export prospects are providing a strong upward impetus for coffee. Conversely, there is a discernible exit of speculative traders from the market. Source: xStation5
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