World coffee prices reversed course and rose on both the London and New York futures exchanges, while the continued decline of the USDX hampered the consolidation of coffee futures prices. A more hawkish statement from the US Federal Reserve (Fed) contributed to further pessimism among Wall Street investors, leading to a third consecutive day of declines in US stocks and a further drop in the USDX.
Thus, both robusta and arabica coffee prices have adjusted after the previous sharp decline due to lingering concerns about short-term supply shortages, while major producing countries have just begun harvesting their new crop for the 2023/2024 coffee season.
According to the latest report from the Foreign Agricultural Service (FAS) of the U.S. Department of Agriculture (USDA), Indonesia's robusta coffee production in the 2023/2024 crop year is estimated to decrease by 18% compared to the previous year, falling to 9.7 million bags, the lowest level in 10 years, due to excessive rainfall.
Besides the rising exchange rate hindering the consolidation of coffee futures prices, arabica coffee prices continue to face downward pressure due to favorable weather conditions boosting the harvest in Brazil. According to the latest FAS report, Colombia's arabica production in the 2023/2024 coffee year is estimated to increase by 2% compared to the previous year, reaching 11.6 million bags, due to favorable crop development. This information is contributing to downward pressure on arabica coffee prices.
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| Domestic coffee prices today, May 25th, increased by 400-500 VND/kg in some key purchasing areas. (Source: Newtimes) |
At the close of trading on May 23rd on the international market, robusta coffee prices on the ICE Futures Europe London exchange rebounded. The July 2023 robusta futures contract rose by $16, trading at $2,573 per ton. The September contract increased by $20, trading at $2,530 per ton. Trading volume was below average.
Arabica coffee prices on the ICE Futures US New York exchange turned slightly higher. The July 2023 contract rose 0.55 cents, trading at 188.00 cents/lb. Meanwhile, the September 2023 contract increased 0.55 cents to 185.75 cents/lb. Trading volume was above average.
Domestic coffee prices today, May 25th, increased by 400-500 VND/kg in some key purchasing areas.
Unit of measurement: VND/kg. (Source: Giacaphe.com) |
On May 24, the Fed released the minutes of its regular May 2023 Federal Open Market Committee (FOMC) meeting, which mentioned the possibility of a "mild recession" in the US economy.
According to the meeting minutes, Fed economists assessed that tightening financial conditions “will lead to a mild recession, beginning later this year, followed by a moderate-paced recovery.”
The written minutes projected a relative decline in real GDP over the next two quarters, followed by a slower pace of decline in Q4 2023 and Q1 2024. At the May 2023 meeting, all 11 members of the FOMC voted in favor of a tenth consecutive interest rate hike, aimed at curbing the rate's upward trend. However, leaders remained divided on what to do next.
According to technical analysis, yesterday's downward correction in robusta prices was understandable, given that robusta had been rising for several consecutive sessions. Technical indicators are signaling that the downward momentum remains. In the short term, robusta prices are expected to consolidate within the 2500-2600 range. The 2485-2500 price range is currently the nearest support zone for robusta prices; a loss of this level could lead to a downward trend.
Technical indicators in the arabica market are showing neutral signals, with no clear price trend. In the short term, arabica prices are expected to consolidate within the 185-190 range. Arabica coffee needs to reach and maintain above 190 to have a chance of further increase. Conversely, 180-182 is currently the nearest support zone; a loss below 180 could trigger strong selling pressure.
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