The month of February started with trading of the May 23 position (KCk23) at 177. Throughout the month, trading remained in the range of 172-194, with the majority of the time in the high 170s.
On the supply side, the market was reacting to multiple influencing factors this month. Throughout most of the month of February, there was an increased level of ICE coffee inventories, which was bullish for prices. In mid-February, heavy rains throughout Minas Gerais kept farmers from working the fields and applying the typical fertilizers which caused concern over the upcoming harvest in the 23/24 crop. Poor flowering was also observed, which created additional concerns for the harvest. Major forecasts for production were revised down (some by up to 20%), causing a reactionary spike in the coffee market as many grew concerned over supply. Additionally, the FNC in Colombia reported that January coffee exports were down 19% from the same period last year (year over year, y/y).
Another factor influencing the market heavily over the last month has been the strength of the Brazilian real (BRL). Coffee market prices are given in US dollars; however, it should be remembered that local production costs occur in reals. As the real gains strength against the dollar, a single dollar equals fewer reals in currency conversion. On the ground, this means that there is an increase in labor costs and other local input costs (such as fertilizers). For labor-intensive commodities, such as coffee, a strong Brazilian real means coffee costs more for producers to grow. When looking at what causes a rise in the Brazilian real, it can be a bit of a "chicken or the egg" situation. Rising commodity prices put upward pressure on the real as it can create additional tax revenue and business profits for the Brazilian government, which increases GDP and leads to a more valuable Brazilian real.
Where does this leave coffee roasters in the U.S.? Roasters in the U.S. can expect to see the prices of Brazilian coffee significantly increase the next time they go to make a purchase. In fact, prices internally in Brazil have jumped up 25 cents for some qualities just from January 1 to March 1. These higher Brazilian prices are due in part to coffee being more costly to produce in Brazil (as mentioned above) as well as the fact that many farmers are "hoarding" coffee stores hoping for improved pricing. With so many producers holding off on selling their coffee, waiting for prices to improve, there is a shortage of cash coffee on the market being sold in Brazil. At some point, producers will need to bring that coffee to market and sell it so that they can get the money they need for supplies for their farms, however, no one can quite be sure when that will be and how long the high internal Brazil prices will last.
Spot trading is currently occurring in May 23 (KCK23). The first notice day for KCK23 is April 20, at which point all fixations on KCK23 will need to be finalized and spot pricing will be against July (KC23).