MILAN – The day after US tariffs were put on hold, the falling dollar was the catalyst for a rally in the coffee markets. On Friday 11 April, the Ice Arabica July contract closed at 353.60 cents, up 3.5% (+12 cents) on the day but down 2.7% on the week. Earlier this week, the benchmark had reached on Wednesday its lowest level in almost three months.
A similar trend was seen in London, where July gained 3.1% (+$153) but ended the week down 2%.
The temporary, partial easing of tensions on the tariff front helped the rally, which was further fuelled by the selloff in the dollar index to a 3-year low
Indeed, the greenback continued to lose ground against the major currencies as uncertainty over the US economic outlook in the trade war cast doubt on the US currency’s safe-haven status.
The U.S. Dollar Index (DXY00) plunged to its lowest level since April 2022.
The exchange rate against the euro also reached its lowest level in three years; that against the Swiss franc even in 10 years.
Uncertainty reigns supreme on the coffee markets, due to the complexity of the current global economic situation and because production prospects in Brazil still look unclear.
Broker BMI, part of Fitch Solutions, on Friday sharply raised its forecast for average Arabica futures in 2025 to 340 cents/lb from a previous forecast of 240 cents.
For the current coffee year (2024/25), BMI expects global production to reach 174.4 million bags, up sharply from 168.1 million bags in 2023/24.
The main factors behind BMI’s sharp upward revision are the pessimistic crop forecasts for Brazil and Vietnam.
However, the broker stresses the unknowns of a very volatile market. He also fears that the imposition of tariffs on coffee imports into the US could lead to further price increases, which could affect US consumption.
With the start of the long harvesting season approaching, markets are wondering about the size of the next Brazilian crop (2025/26).
Conab will publish its second official estimate on 6 May. The first forecast pegs production at 51.8 million, down 4.4% year-on-year.
Arabica production is estimated at 34.7 million, down 12.4%, and Robusta at 17.1 million, up 17.2%.
StoneX expects Brazil to produce 64.5 million bags, down 2.1% on-year. The Arabica crop would fall 13.5% to 38.7 million, offset by a strong recovery in Robustas (+21.9%), which would rise to 25.8 million.
The Miami-based financial services firm points out that the climatic trend has had a negative impact on the crops and has also led to extensive pruning (esqueletamento) to revive the trees.
Brazil’s coffee giant Cooxupé expects to receive 5.6 million bags from its members this year, 10% less than last year.
Carlos Augusto Rodrigues de Melo, president of Cooxupé, attributes the drop in production to the weather. Crop care was the same or even greater than in previous years,’ he said in an interview.
Producers have bought more fertiliser, encouraged by high coffee prices, but production will be lower.
