Brazil Coffee Bean Production Decline Tightens Global Market Supply Arabica Futures Prices Rise to 4-Year High
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According to a recent statement from international coffee trader OLAM, the drought weather experienced in Brazil's coffee-producing regions last year has led to a decline in this year's Brazilian Arabica coffee bean production. The world is potentially facing the most severe shortage of Arabica coffee beans in 20 years. OLAM predicts this year's Arabica production will be 35.5 million bags (60kg per bag).
While coffee bean production declines, some countries are gradually recovering from COVID-19 and beginning economic recovery. Coffee consumption demand is also increasing, making the global coffee supply-demand balance extremely fragile. Strong concerns have emerged in the supply market.
The chairman of CECAFE stated that current Brazilian coffee inventory levels are very low, which means the market struggles to withstand the impact of large-scale production reductions. Due to supply shortages, multiple coffee traders predict that coffee prices will rise this year due to the shortage.
Last year, the international coffee futures benchmark price fluctuated between 90 to 110 US cents per pound, but began rising this year, showing 120 cents, before oscillating between 120-140 cents. It has now approached 140 cents again. OLAM indicated that the tension from coffee shortages will continue to drive up coffee prices and persist through the 2022/23 season.
According to Reuters, on April 28th (Thursday) US time, the July Arabica coffee futures contract closed at 145.90 US cents per pound, marking the second-highest closing price since February 2017 (when the highest closing price was 167.65 US cents per pound).
(Arabica futures price trends from 2015 to present)
The main reason for this recent increase is precisely the supply shortage of coffee that has generated strong concerns in the market, combined with the recent strengthening of Brazil's currency, the real. The Brazilian real appreciated to its highest point in nearly two and a half months on April 28th. This appreciation reduced the inclination of coffee growers and traders to sell coffee beans, thereby pushing up Arabica prices.
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