Strong Sell-off in Coffee and Cocoa

After three days of solid growth in the coffee market, a strong pullback and price drop occurred. The sell-off affected both Arabica and Robusta, and was also accompanied by drops in the cocoa market.

Over the 12-month perspective, the price of cocoa remains clearly lower, Robusta has fallen below the levels from last July, and Arabica is holding slightly above. Source: Bloomberg Finance LP

Arabica: Profit-taking and Weaker Real

Arabica recorded a steep decline today—losing up to 4.2% during the New York session. Several factors converged on this:

• Profit-taking and Exchange Rate: The sell-off is largely a result of profit-taking after Tuesday's increase to two-week highs. The pretext was the fall in the Brazilian real's exchange rate (USD/BRL at a 2.5-week high), which encourages local producers to increase export sales.
• Accelerated Harvest: Although previous heavy rains in Minas Gerais state significantly slowed down work (Brazil's harvest is estimated at 64% compared to 77% a year ago), forecasts for the coming weeks predict the return of dry and warm weather. This should efficiently accelerate the harvesting of beans and alleviate supply concerns.
• Low Inventories as a Buffer: A factor supporting Arabica in the long term remains its inventories on the ICE exchange, which have fallen to a 2.5-year low (289,759 bags).

Arabica falls after strong gains yesterday to the 50.0 retracement of the last downtrend wave. Source: xStation5

Robusta: Good Weather in Vietnam Hits Prices

In terms of fundamentals, Robusta has received the most negative news recently, but the declines are slightly smaller than for Arabica.

• Reduced El Niño Fears: Favorable monsoon rains in Vietnam (the world's largest robusta producer) clearly alleviated concerns about crop failure caused by drought.
• Inventory Increase: In contrast to Arabica, robusta inventories monitored by the ICE exchange defended themselves after recent lows and are drifting in the region of 4-month highs. As a result, the London exchange pushed robusta prices down

The price of Robusta is also under significant supply pressure. Source: xStation5

Cocoa Under Pressure

The weaker atmosphere in the agricultural commodities market also affected cocoa. Contracts for this commodity in New York fell by 1% today, fitting into the general corrective movement in the soft commodities market.