Arabica coffee prices have been rising for the 3rd day in a row, hitting the upper limit of tte short-term consolidation which started in December. As one can see, the behavior of the Brazilian real does not support coffee prices. Nevertheless, it is worth noting that we are observing a global increase of commodity prices, which is also related to the expectation of a weaker dollar and rising inflation.
From the beginning of the year, coffee prices have remained at a high level, which is related to the expectation of smaller harvests in Brazil and the reduction of exports from the key production countries of Central America, famous for high-quality coffee - Honduras and Guatemala. Nevertheless, it's important to remember that in 2020 we saw huge production in Brazil, despite concerns over the coronavirus and a contraction in demand. The tremendous increase in production from Brazil last year led to a rise in coffee inventories on the stock markets (on the other hand, coffee inventories from Central America fell sharply).
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We can see that in most cases the higher level of coffee inventories on the stock exchanges (yellow line, reverse axis) led to price drops. A further strong increase may limit the upside potential, even in the event of a strengthening of the Brazilian real or a rebound in demand as restaurants and cafes open in North America and Europe. Source: Bloomberg
Coffee price is approaching the upper limit of short-term consolidation. Even if breakout occurs, buyers will need to deal with a very strong supply zone marked with local highs from previous years. Source: xStation5
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