THE premium for arabica coffee over robusta beans widens to the most since April 2023 amid concerns over tight supplies of the pricier variety.
The price difference expanded to more than 90 US cents a pound on Thursday (Dec 5) as arabica futures gained as much as 3.3 per cent. The most active contract in New York has surged more than 6 per cent in the last two days amid worries about lower production in Brazil, the world’s largest coffee producer.
Global coffee supplies are tightening after several years of disappointing crops in the South American nation. Extreme drought earlier this year hurt prospects for the harvest that starts in May, taking prices to the highest in nearly five decades last month.
The widening arbitrage “is sure to begin the conversation of demand switching”, said Tomas Araujo, a trading associate at StoneX.
Supplies of robusta beans also remain tight in the near term as farmers hoard beans and rains delay harvesting in top grower Vietnam. Volatile prices may have discouraged selling and cash trading in the country has been quiet, but beans could start to arrive in bulk within the next two weeks, ADM Investor Services analyst Mark Bowman wrote in a Thursday note.
The market is also monitoring financial distress in the industry as coffee traders struggle to meet margin calls after the rapid surge in prices. Some participants who sold futures were forced to buy them back to step away from the market, sending prices even higher.
Meanwhile, New York cocoa futures climbed as much as 6.2 per cent to US$9,982 a tonne, the highest in almost six months. Markets are watching to see if prices will reach the key US$10,000 level, as “staying above round number US$10,000 resistance appears necessary to signal more upside”, Mike McGlone, a senior commodity strategist at Bloomberg Intelligence, wrote in a note.
Trader Pierre Andurand said the dip below US$7,000 a tonne earlier this year was “likely to be temporary” in an opinion piece for the Financial Times.
“With the current rally barely a year old and supply headwinds likely to worsen for at least four years, the stage appears set for cocoa prices to reach new inflation-adjusted highs,” wrote Andurand, whose hedge fund holds positions in the cocoa market. BLOOMBERG
