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Coffee Futures Tumble as Brazilian Currency Weakens

May 18, 2017 at 16:55 by Andrew Moran

One day after climbing more than 2%, coffee futures are tumbling on Thursday. Coffee futures are trading lower near the end of the week as Brazil’s real currency comes under pressure amid political turmoil. Robusta coffee bean output is also offsetting potential declines in Arabica production.

July coffee futures fell $0.0345, or 2.57%, to $1.309 per pound at 16:38 GMT on Thursday on London’s ICE Futures exchange. This comes following coffee’s hefty gains on Wednesday as the US dollar weakened against a basket of currencies. Year-to-date, coffee prices have dipped nearly 8%.

Coffee futures are taking significant hits because of the Brazilian real slipping on reports that the president allegedly bribed a witness in a graft investigation. The real slumped 7% to a seven-month low against the greenback. A sliding real makes prices better for Brazilian products, which means it also prompts them to boost prices.

According to Conab, the Brazilian crop bureau, it is estimated that Brazil’s 2017 total coffee output will decline 11.3% compared to the previous year. Analysts forecast that Brazil’s 2017 coffee crop will be 45.6 million 60-kg bags, down from January’s prediction of 47.51 million bags.

Brazil’s robusta coffee production is expected to improve thanks to heavy rains. The same cannot be said for arabica coffee output because of last year’s tepid harvest. It should be noted that Brazil is more sensitive to arabica fluctuations than robusta because it is the biggest exporter of arabica.

Unlike in recent years, in which conilon coffee crops were affected by adverse weather conditions, this season rains came between December and February, creating major changes in conilon crops as they went through their growth phase.

Brazil is the top producer of coffee.

Last week, International Coffee Organization (ICO) published a report that slammed hedge funds for having an immense impact on coffee futures. ICO analysts argued that hedge funds tend to trade commodities like coffee as an asset class rather than on the basis of supply and demand fundamentals.

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