Tightening supply availability is propelling price advances in coffee and sugar
August 28, 2024
Key Observations:
Coffee future prices have been in an uptrend for nearly a year. The rolling prompt NYB arabica price (KC1) made its 52-week low below 144 cents per lb more than ten months ago (10-Oct-2023). That price made a new 52-week high yesterday at 263.65 cents. The active contract (Dec-24, KCZ4) closed today at 256.45 cents, +36% ytd.
Today’s draw on ICE coffee stocks has our attention. Total inventories drew by 6,765 bags and now stand at 831,685 bags, according to the exchange. This is the sixth (and largest) daily draw in the past seven days. This pattern is seasonal but early relative to history. It is more consistent with the exchange inventory drawdowns that began in the last week of August in 2022 and 2023 than the behavior of prior years. In 2019 and 2020, seasonal draws on exchange stocks began a month later. Moreover, recent autumn drawdowns have been occurring from progressively lower levels. In 2018, 2019 and 2021, ICE coffee stocks were above 2.0 million bags on Sep 1.
We expect draws on inventory to sustain upward price pressure on the prompt futures. The curve is backwardated, with Jul-25 (KCN5) and beyond capturable below 250 cents per lb. This setup continues to look like a nice long exposure to us.
Sugar prices are also moving higher on supply-side pressures, but the driver is more grim. Wildfires in Brazil are burning through sugarcane acreage. SBV4 closed above 19 cents per lb for three consecutive days for first time since July 17.
Source: ICE-NYB, Bloomberg, Blacklight Research.
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