Volatility and Supply Shortages Drive Coffee Markets

The analysis of the robusta and arabica coffee markets this week highlights the volatility and tension between supply and demand. The September contract for robusta coffee fell by $28, closing at $4,294 per ton, despite reaching a record peak of $4,394 earlier in the day. This modest decline reflects a market that remains extremely tight, with operators pointing to limited supply partly due to concerns over the crop in Vietnam, the world's largest producer of robusta. Strong demand continues, exacerbating the shortage and keeping prices high.

Czarnikow, a supply chain services company, explained that the robusta shortage results from the production's inability to meet the significant post-Covid demand expansion. This dynamic of supply and demand has led to robusta prices strengthening, which also impacts arabica futures. Operators note that funds are expanding their net long positions in both markets, reflecting confidence in high prices and the expectation that this trend will continue due to supply constraints.

Arabica coffee, in particular, showed robust performance with the September contract rising 1% to $2.3335 per pound, after reaching a seven-week peak of $2.3870. The interconnection between the robusta and arabica markets, along with the robusta shortage, is driving up arabica prices. This interdependence highlights the complexity of the coffee market, where factors such as global demand and production conditions in key producing countries play critical roles in determining future prices.

Source: Investing.com