Breaking News
Close
Investing Pro 0
NEW! Get Actionable Insights with InvestingPro+ Try 7 Days Free

Arabica Coffee Remains Scalding Hot On Brazilian Bean Squeeze

By Investing.com (Barani Krishnan/Investing.com)CommoditiesJan 19, 2022 04:13
ca.investing.com/analysis/arabica-coffee-remains-scalding-hot-on-brazilian-bean-squeeze-200498418
Arabica Coffee Remains Scalding Hot On Brazilian Bean Squeeze
By Investing.com (Barani Krishnan/Investing.com)   |  Jan 19, 2022 04:13
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

The steaming arabica rally from last year has spilled over into January due to a squeeze in the supply of the premium coffee bean grown largely in Brazil.

Arabica is widely hailed as the king of coffee beans, consumed by 70% of the coffee-drinking world and ranks as the premium bean of choice for renowned coffee chains from Starbucks (NASDAQ:SBUX) to Restaurant Brands' (NYSE:QSR) owned Tim Hortons and Dunkin Donuts. 

It finished up 76% last year, firstly due to production outages in COVID-hit farms and processing centers, and later from container constraints that made it hard to ship the bean out of Brazilian ports in time.

January-to-date, arabica is up another 6% on extended production and logistical problems, as well as inclement weather that has hurt crop prospects.

Coffee Daily
Coffee Daily

All charts courtesy of skcharting.com

“Containers are not available” for arabica farmers in Brazil to ship their beans, said Jack Scoville, chief crop analyst at Chicago’s Price Futures Group. He estimated that up to 82% of the Brazilian harvest had already been sold and demand remained strong for more beans from the region.

“The dry weather and then the freeze in Brazil have created a lot of problems for coffee trees to form cherries this year,” added Scoville. “Big rains more recently in some Brazil growing areas have hurt cherry formation as well.”

Fortunes of the New York-traded arabica contrast with those of London-traded robusta coffee, which is down 7% since the start of this year. Robusta is found in most instant coffee brands on the market and is a natural choice for decaffeinated coffee. Grown largely in Vietnam, robusta is having similar supply and crop issues as arabica, but without commensurate demand.

“Trends in London have turned down but trends in New York are still sideways or up,” Scoville said, explaining the market variance between the two bean types.

The coffee market as a whole swung from a surplus to a deficit of more than 5 million bags last year, according to Rabobank analysis reported by Fortune. Shipping constraints and uncertainty on when and how coffee would be transported triggered the untoward buying that led to the 2021 rally.

Coffee Weekly
Coffee Weekly

Rabobank had predicted that the “panic buying” in arabica would stop after Christmas, but also the wild card was the weather in Brazil, which was hit by dry weather in the earlier part of 2021 before a frost that followed.

Ole Hansen, head of commodity strategy at Saxo Bank, told CNBC in December that “a perfect storm of events [has been] conspiring to give our beloved bean a boost,” referring to arabica.

“The question for future price action is how much of these developments are potentially longer-lasting,” Hansen said.

“I think we need to focus on what’s been unfolding in Brazil. We’ve had a generational low in temperatures, a very quick spell of frost which hit some of the growing areas, and we’ve had a period of drought—this has left the 2022 crop in a bit of a precarious state.”

Hansen said adverse South American weather could even affect 2023 arabica yields.

“We saw coffee rally to about $3 per pound back in 2011, when we had another Brazil scare,” he said.

“These are really the kind of numbers that prompt the market to speculate whether we can reach those levels once again, and I think with Brazil in mind, and if the projections over the coming months continue to confirm a slowdown or reduction in output, then the risk of our brew getting more expensive is very real.”

“I think on balance we have a market which is, for the first time in years, starting to show some tightness,” Hansen added.

Coffee Monthly
Coffee Monthly

So, will arabica return to $3 per lb?

In Tuesday’s trade on ICE Futures US, a pound of arabica settled at $2.3960 per lb. That’s still a long way from $3. 

But Sunil Kumar Dixit, chief technical strategist at skcharting.com and a regular contributor of commodity technicals to Investing.com, said arabica’s charts indicate a lot more technical steam left in the price.

Dixit noted that early December highs of $2.52 for arabica attracted profit booking by seasonal retail traders, pushing the market to the $2.20 level where value buying helped a bounce back to $2.44.

“Strong consolidation above $2.44 may now endorse upward momentum towards the December top of $2.52 and could extend this to $2.56 going into late February and mid-March,” he said.

Drilling into chart details, he explained that arabica’s weekly chart showed a significant rebalancing and a so-called stochastic reading of 69/49 that reflected positivity, with a crossover testing the Relative Strength Index at 69.

But like all uptrends that break, arabica had its vulnerable point under $2.32, he said. 

“Breaking below $2.32 can weaken the momentum and may trigger a short-term correction that targets the horizontal support level of $2.20, which is also a caution point for extended corrections,” added Dixit.

Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables. He does not hold a position in the commodities and securities he writes about.

Arabica Coffee Remains Scalding Hot On Brazilian Bean Squeeze
 

Related Articles

Arabica Coffee Remains Scalding Hot On Brazilian Bean Squeeze

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Our Apps
DOWNLOAD APPApp store
Investing.com
© 2007-2022 Fusion Media Limited. All Rights Reserved.
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
  • Sign up for FREE and get:
  • Real-Time Alerts
  • Advanced Portfolio Features
  • Personalized Charts
  • Fully-Synced App
Continue with Google
or
Sign up with Email