Since peaking at a 10-and-a-half year high of USc 251.9/Ib on 16th February 2022, the benchmark price of arabica coffee futures at the InterContinental Exchange (ICE) New York (NY) fell by USc 26.4/Ib (-10.5%) to USc 225.5/Ib during the three-weeks ending 9th March 2022, representing a 16-week low.
The NY arabica price had maintained a lengthy rally, increasing over 16 consecutive months from a floor of USc 109.9/Ib in October 2020. The surge was supported by several key fundamentals. Most notably, dry weather in key Brazilian growing states undermined the 2021/22 ‘off-year’ crop yield, while severe frosts and below-average rainfall heightened concerns regarding the 2022/23 ‘on-year’ crop development, which is due to be begin harvesting around May 2022. Resurgent demand, against a substantial decrease in certified stocks – ICE-monitored coffee inventories fell to a 22-year low on 24th February 2022 – and rising inflation, provided further price support.
However, the geopolitical tensions between Russia and Ukraine injected uncertainty into global commodities ahead of the full-scale Russian military offensive on 24th February 2022. Russia is the world’s fifth largest coffee importer, and the threat of a lengthy war and continuing international sanctions on Russian imports are likely to have contributed towards the arabica price weakness. Moreover, concerns that the crisis may result in a prolonged global recession, weighing on global coffee demand is cited as another downside price driver. It is also increasingly likely that the geopolitical uncertainty is leading speculators to liquidate long positions in coffee, in favour of ‘safe-haven’ assets, including metals and the USD, or higher profit commodities, such as Brent crude and natural gas. The USD gained 3.3% against the EUR, 2.9% against the GBP and 1.2% against the JPY respectively during the four-weeks ending 9th March 2022, which seems to support this view.
The ICE London robusta futures price fell by a similar magnitude to arabica during the four-weeks to 9th March 2022, from a 10-a-half year high of USD 2,263/MT to USD 2,037/MT, representing a decline of USD 226/MT (-10.0%). The slump is attributed to the same geopolitical drivers.