Coffee futures nears 15-year lows – Charles Schwab

The September 2020 coffee contract trades near 15-year lows at $.95 a pound. Higher prices, needed by smaller producers just to break even, face headwinds including an expected bumper crop, lockdown-driven demand destruction, and a struggling local currency for the leading global producer Brazil, per Charles Schwab. 

Key quotes

“A global surplus of 3.5 million bags is expected in 2020-21 as Brazil expects a record crop after a lower yield in 2019. To some degree, this had been anticipated by the market.”

“Adding to concerns about a bulging supply imbalance, the Brazilian real has dropped 5% in the last few weeks versus the U.S. dollar. Coffee farmers in Brazil who fear continued real weakness are incented to deliver more and more coffee for export, even at the current low prices.”

“Expectations for demand growth, the one positive variable that had supported price increases, have been dialed back in light of the global pandemic. Recent data from the International Coffee Organization revealed global arabica coffee exports of 82.75 million bags in 2019, a six percent increase over 2018, and growth had been expected to continue in 2020 until lockdowns tempered the optimism.”