Coffee Price Trend In The New Crop Year 2022/2023: According to the analysis of domestic and international experts, update the latest forecasts and predictions on coffee prices next week and in 2023. Coffee futures prices continued the upward momentum when USDX when the market speculated that the Fed would only increase its operating interest rate by 0.25% at the mid-February policy meeting.
The Coffee Market Looks At The Supply-Demand Factor
Global coffee production in the coffee year 2022/23 is estimated by the US Department of Agriculture (USDA) to increase by 7.8 million bags to 175 million bags thanks to Brazilian arabica in the growing season.
USDA predicts Brazilian arabica production of about 41.5 million bags and Robusta 22.8 million bags, Vietnam 30.8 million bags mainly Robusta, Colombia 13 million bags of arabica, and Indonesia 11.4 million bags, including 10 million robusta bags. Coffee consumption is estimated to be equal to or slightly increased in the 170-171 million bag region if ICO numbers are considered.
A surplus of 5-8 million bags of coffee in the new crop year. Thus, the output of the top 4 exporting countries, with a total of about 120 million bags, can satisfy 68% of world consumption demand.
USDX continued to decline; investors returned to pour capital into commodity markets as the Chinese market reopened and emerging currencies added value. The appreciation of the real will encourage Brazilians to reduce selling.
According to observers, recording a significant buying force in the world coffee futures markets was that the Commodity Funds bought up for the net solid selling volume during the previous two weeks.
With Robusta, the Central Highlands coffee region of Vietnam continues to have erratic rains, causing farmers to worry about the quality of the new coffee beans that are currently being dried. However, the Vietnamese coffee market close to the traditional Tet holiday was quiet because farmers did not sell when the asking price was unattractive and demand was weak. In contrast, coffee prices increased in Indonesia due to the supply limit.
Monetary Factors Under The Impact Of Inflation
The more strong USD value devalues other domestic currencies. Even strong currencies such as the British Pound (GBP), Euro, and Yuan (CNY)… even the two local currencies of Brazil and Vietnam, the Brazilian Reais (BRL) and VN Dong (VND), also weakened much more than USD. Recently, the value of GBP fell to a historic low in the USDGBP currency pair; the Euro sometimes dipped below the USD, CNY fell to the deepest level in 14 years, and VND passed 24,000 VND to 1 USD…
A strong dollar causes the value of countries’ currencies to decrease, especially consuming countries, thus hindering imports. On the other hand, high inflation also makes consumers hesitate in front of stalls and shops. High operating interest rates in importing countries restrict traders from stockpiling goods for long-distance sales.
For the exporting country, a depreciating currency will create more selling pressure because income in terms of local currency is more significant. If combined with the coffee surplus factor, the selling pressure from both sides is from the impact of the local currency’s devaluation against the USD and the abundant supply itself. The case of inflation in consuming countries and rising operating interest rates put more strain on the flow of goods to foreign markets. Therefore, goods sometimes have to go around the country.
The consequence will be that the domestic price of coffee is sometimes higher than the purchase price that the importer can accept. This will cause congestion for business, affecting the overall export turnover.
Coffee Price Trend In The New Crop Year 2022/2023
The Covid-19 epidemic created a logistics crisis, disrupting the global coffee supply chain. The Russo-Ukrainian war caused the most difficulties due to the scarcity of fertilizers, high energy prices, and high production costs. This situation has been reflected in prices on both exchanges and the domestic raw material market.
Robusta futures prices on January/23 hit $2,499/ton (December 27, 21), and Arabica prices on December/22 hit a peak of 260.45 cents/lb, but then London bottomed at $1,905/ton, and New York 199.20 cts. /lb but recovered so that the two exchanges stood at the close at the end of the year session of Robusta at $2,146/ton and arabica at 212.55 cents/lb.
The price structure inversion (backwardation), or what people in the market often call “price squeeze,” appeared on both exchanges due to the lack of containers, causing the standard inventory to decrease. “Price squeeze” has worked to help coffee prices recover and stay at a high level, and financial investment funds have increased short buying to “defend” their business positions. Thus, as long as the situation of squeezing prices cools down, the condition of ships is stable, and prices will ease.
Many predict the average price on the two coffee derivatives floors in 2022 arabica is around 195-200 cts/lb, Robusta in the range of 2,000 USD/ton with a tolerance of +/-100 USD. Thus, if the floor can solve the price inversion, the price will quickly drop to the low area; if it is still squeezed, it will hover at the high place of those predictions.
The price of raw coffee in producing countries, especially in Vietnam, is not necessarily based on the floor price as a “hard reference.” The domestic market largely depends on the devaluation of local currencies on a current basis of VND47-48 million/ton.
Through 2023 it may be different as Brazil enters a crop year cycle for the 2023/24 crop year. The price prediction depends on the flowering of Brazil from October 22 onwards and the flood situation caused by La Nina in Vietnam.
It is possible that, facing the pressure of increasing US interest rates and tight credit sources, traders on the floor have to liquidate more or less short contracts. If so, the derivative price is still weak in the first three months of the crop year. But in the first half of 2023, due to the small Brazilian crop, as a rule, they can return to buy at the same time as the interest rate increase program of banks, only to hope that the price of coffee derivatives is somewhat better.
Robusta Coffee Price Trend
In the short term, the price may continue to increase and find the next resistance level, which is the 1930 level or beyond, the 1950 zone. On the contrary, 1850 – 1860 is a challenging support area for the price.
Arabica Coffee Price Trend
According to technical analysis, the technical indicators show neutral signals that the price trend is unclear. It is expected that in the short term, Arabica’s price may struggle to accumulate within the range of 145 – 160.
General forecast of the coffee market
- According to the Vietnam Commodity Exchange, coffee prices will continue to move according to changes in supply and demand. In 2023, the major central banks still decided to pursue a tight monetary policy; the world economic picture will continue to be gloomy. Accordingly, the demand for coffee will be challenging to recover, even dropping sharply next year.
- Information from the Commodity Exchange of Vietnam (MXV), in the context of the global economic downturn from the beginning of the year until now, the demand for coffee is likely to weaken. This decline comes from the fact that coffee is a non-essential commodity and highly depends on the economy’s health. However, consumption will not change too much, especially in long-term consumption markets.
- Fluctuations in the USD exchange rate against other currencies and high inflation in many countries, especially in the US and Europe, have raised concerns that global coffee demand will decline as consumers tighten spending.