Arabica Coffee Prices Supported By Downgraded Expectations for Brazilian Crop

Arabica coffee prices turned higher on Friday, regrouping after Thursday’s losses that followed a quick drop in the value of Brazil’s real currency amid allegations that the country’s president bribed a witness in a graft probe.

The real dropped 7% versus the US dollar on Thursday. When the real loses value compared to the greenback, Brazilian farmers become more willing to sell their coffee supplies because coffee is priced in US dollars while Brazilian farmers pay expenses in reals. When the real depreciates their profit margins increase. The perception of higher coffee sales in turn pressures prices.

On Thursday, July arabica coffee declined 2.2% to reach $1.3150 per lb. At last check Friday, arabica futures were up 2.9% at $1.33 per lb. Strong technicals were contributing to the upside while traders were also digesting the fact that Brazil’s upcoming arabica yields will be lower than expected.

Arabica coffee futures have been pressured for months on indications that the upcoming crop in top producer Brazil will offer bumper yields. But, this week Conab lowered its expectations for the upcoming Brazilian arabica crop. The crop supply agency now sees arabica production at 35.43 million bags, a drop of 18.3% year on year, and close to the bottom of the range of 35.01 million – 37.88 million bags it said it was expecting four months ago. The upcoming arabica harvest is being pressured from the hangover following last year’s bumper crop.

Meanwhile, according to Conab, the outlook for Brazil’s robusta crop has improved. While the outlook for the robusta crop has been pretty dire, much-needed rains have improved expectations. Conab now sees the robusta harvest coming in at 10.14 million bags, up 27% year-on-year, and ahead of the range of 8.64 million – 9.63 million bags previously expected, according to Agrimoney.

Leia Toovey has a B.Sc. in geology from Simon Fraser University, and her degree had a focus on resource economics. Out of school, she started working in the booming mining industry of Vancouver, Canada, covering junior mining stocks and commodities including potash, copper, nickel, oil and gold. Then she moved to New York and worked as a commodities analyst covering a breadth of commodities, from the Baltic Dry Index through the softs. As a geologist she has a greater understanding of the exploration and extraction side of commodities, and how changes in technology and the depletion of resources impact pricing. At Economic Calendar she covers a variety of commodities, providing daily technical and fundamental analysis and assessing major market developments.