Arabica coffee prices are experiencing a resurgence, nearing the significant threshold of 400 US cents per pound.
This level was recently breached at the close of March, indicating a period of strong market valuation.
However, the upward trajectory faced a temporary setback in early April when the price experienced a notable dip, falling to 324 US cents.
Volatility and tariff impacts
This decline is attributed to the implementation of import tariffs by the United States, which introduced downward pressure on the commodity’s value.
The current movement suggests a recovery from this dip and a renewed push towards the 400 cent mark, highlighting potential volatility and sensitivity to international trade policies within the Arabica coffee market.
Factors influencing this price fluctuation likely include supply and demand dynamics, weather conditions in key growing regions, and broader economic indicators in addition to the impact of tariffs.
Tariffs reversal and industry response
The recovery in arabica coffee prices following a period of decline can be attributed to a confluence of factors.
One notable event was the decision by US President Donald Trump to reduce reciprocal tariffs a mere day after their implementation.
While the direct impact on major Arabica producers like Brazil and Colombia was somewhat limited due to the relatively low initial import tariff of 10%, the swift reversal nonetheless had a positive effect on overall market sentiment, Carsten Fritsch, commodity analyst at Commerzbank AG, said.
This improvement in sentiment extended across the coffee sector, partly because significant Robusta suppliers such as Vietnam and Indonesia had been temporarily subjected to considerably higher tariff rates.
Meanwhile, the US National Coffee Association is reportedly urging the US government to grant an exemption for coffee imports from the recently imposed tariffs.
This request highlights potential concerns within the coffee industry regarding the economic impact of these tariffs on businesses and consumers.
The National Coffee Association, as a representative body for the coffee sector in the US, likely believes that the tariffs could lead to increased costs for coffee importers, roasters, retailers, and ultimately, coffee drinkers.
By seeking an exemption, the association aims to mitigate these potential negative consequences and ensure a stable and affordable supply of coffee for the US market. The association head reports positive reception for the application.
Market outlook and demand stability
Furthermore, new forecasts released last week by two private market analysts anticipate a substantial continued decrease in Brazil’s Arabica coffee production this year, attributed to last year’s drought, Fritsch said.
Despite recent price surges in key commodities like coffee and cocoa, preliminary observations suggest a lack of substantial decline in consumer demand.
“Last but not least, the price increases for coffee and cocoa do not yet appear to have had any significant impact on demand, as a confectionery producer from Switzerland announced yesterday (Thursday),” Fritsch said.
“Nevertheless, we would be cautious to conclude that demand will remain unaffected by the high price level in the long term,” he added.
Prices of significantly more than 400 US cents are therefore unlikely to be sustainable.
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