Robusta coffee futures turned lower on Friday, following a very bullish week, which included the commodity posting its biggest one-day price jump in a year on Monday. This was a notable achievement given the commodity’s performance so far this year. Robusta coffee futures have appreciated about 40% this calendar year.
On Friday, robusta coffee futures turned lower as favorable weather boosted harvest progress in Vietnam, robusta’s top producer. Robusta coffee futures for January delivery declined 0.9% to $2,144 a ton. The robusta market remains supported by low supplies, which were impacted by a drought in top producer Vietnam. However, now things are looking up for the upcoming crop. Meanwhile, dry conditions in another major producer, Brazil, have contributed to robusta’s 2016 rally.
The robusta market remains supported by supply concerns, with razor thin stocks in Brazil and poor yields from the crops in major producers Brazil and Vietnam. There are also major concerns over what yields will be in Brazil’s next, 2017-2018 crop, after drought impacted the health of the region’s coffee plants. Meanwhile, there are some improved expectations for yields in the upcoming crops in Vietnam and Indonesia, but it is really too early to be certain.
Meanwhile, arabica coffee futures also turned lower on Friday, but the coffee bean also staged, overall, a positive performance this week. Arabica coffee is benefiting from the strength in the robusta market. Even though arabica is the premium, more expensive bean, robusta beans have at times become so scarce that substitution of robusta with arabica beans has become a real possibility. Premium arabica beans are the preferred drink variety whereas robusta beans are used in instant coffee and coffee flavored foods.
Both arabica and robusta beans also show some strength this week as the Brazilian real strengthened compared to the greenback. Coffee futures are priced in US dollars, but a large amount of coffee is grown in Brazil, where producers pay expenses in reals. When the real appreciates versus the US dollar coffee producers effectively earn less money producing coffee and therefore they are prone to delay sales when the real appreciates. This tightens supplies and causes coffee futures to appreciate.