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A brewing storm for Arabica coffeeArabica coffee prices have experienced unprecedented volatility, with futures surpassing $4.30 per pound on February 10, marking the 13th consecutive record-setting session1. This surge is attributed to a confluence of climatic challenges, speculative trading activities, and inherent agricultural cycles. Speculative trading and market volatility The recent price escalation is significantly influenced by speculative trading. Increased margin requirements by the Intercontinental Exchange (ICE) have led traders to liquidate short positions, intensifying upward price momentum. The ICE raised margins by 10% to $10,410 per Arabica contract, nearly double from a year ago, requiring an initial daily payment of around $62,000 to trade 100 metric tons of Arabica2. This financial pressure has prompted some traders to exit the market, further reducing liquidity and amplifying price fluctuations. Over the past year, short positioning has declined by 64% while long positioning has risen only 1%3. Net speculative positioning is currently more than 1 standard deviation above the 5-year average evident from the chart below. Drought conditions in Brazil Brazil, the world's leading Arabica producer, has faced prolonged drought conditions since April 2024. These adverse weather patterns have significantly impacted coffee trees during their critical flowering stage, leading to concerns over reduced yields for the 2025/26 harvest. The drought-induced stress on coffee plants has been a primary driver behind the escalating prices. According to the latest estimates by the United States Department of Agriculture (USDA), Brazil’s 2024/25 total coffee production is forecasted at 66.4mn bags4. Brazil’s coffee exports hit record highs in 2024 as they expanded their share of the global market, filling a gap left by other large producers such as Vietnam and Indonesia. According to USDA, ending stocks in 2024/255 are expected to be 1.24mn bags, marking a 26.4% decline versus 2023/24. As of 2025, the global coffee stocks-to-use ratio stands at approximately 12.42%, reflecting a constrained supply scenario6. Biennial bearing cycle Arabica coffee plants exhibit a biennial bearing cycle, characterised by alternating years of high and low yields. The 2024/25 season was an 'on-year', typically associated with higher production. However, due to the prevailing drought, even this 'on-year' did not meet expected output levels. Looking ahead, the 2025/26 season is an 'off-year', which traditionally yields lower production. Coupled with the current climatic challenges, this cyclical downturn is anticipated to exacerbate supply constraints, further influencing price trajectories. La Niña phenomenon The La Niña event, characterised by cooler-than-average sea surface temperatures in the central and east-central Pacific Ocean, has been in effect since January 2025. Historically, La Niña influences global weather patterns, often bringing drier conditions to South America. The National Oceanic and Atmospheric Administration (NOAA) projects a 66% chance of La Niña persisting through February-April 2025, with a transition to neutral conditions likely by March-May 20257. The phenomenon could lead to lower temperatures and frost in Southeast Brazil, intense rains in Indonesia and Colombia, and increased risks of tropical storms and hurricanes in Central America. In Southeast Brazil, lower temperatures and greater risks of frost threaten coffee crops. Indonesia may experience harvest delays or interruptions due to more intense rains, especially in Sumatra. Vietnam experiences negative temperature anomalies during the phenomenon, but their impact on yields remains uncertain. In Colombia and Guatemala, more intense rainfall can damage trees or increase susceptibility to disease. Regulatory impact The European Union's Deforestation Regulation (EUDR) aims to curb imports of commodities linked to deforestation, including coffee. Originally set for enforcement by the end of 2024, the regulation's implementation has been postponed by one year to December 2025. This delay offers producers additional time to adapt to stringent traceability requirements. Despite the postponement, the impending regulation has already influenced market dynamics, with European importers accelerating purchases to build inventories ahead of the compliance deadline. This pre-emptive buying has contributed to tightening global supplies and escalating prices. Market outlook While current prices reflect immediate supply concerns, market analysts anticipate potential easing in the longer term. A Reuters poll suggests that Arabica coffee prices could decline by approximately 30% by the end of 2025, contingent upon improved weather conditions and a resultant rebound in production8. However, this projection is predicated on the assumption of favourable climatic developments and the absence of unforeseen disruptions. In summary, the Arabica coffee market is navigating a period of significant volatility, driven by climatic adversities, speculative trading, and inherent agricultural cycles. This material is prepared by WisdomTree and its affiliates and is not intended to be relied upon as a forecast, research, or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date of production and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by WisdomTree, nor any affiliate, nor any of their officers, employees, or agents. Reliance upon information in this material is at the sole discretion of the reader. Past performance is not a reliable indicator of future performance. 1 Bloomberg as of 19 February 2025. 2 Reuters as of 12 February 2025. 3 Commodity Futures Trading Commission from 6 February 2024 to 4 February 2025. 4 Coffee stocks-to-use ratio sourced from USDA reports. 5 Ibid. 6 United States Department of Agriculture as of December 2024. The stocks-to-use ratio is a critical metric in the coffee industry, representing the proportion of ending stocks relative to total consumption 7 National Oceania and Atmospheric Administration as of 13 February 2025. 8 Reuters Poll as of 13 February 2025
ICEUS:KC1!
by aneekaguptaWTE
Are Global Coffee Markets Brewing a Crisis Beyond Price?In an unprecedented turn of events, the coffee industry faces its fifth consecutive season of demand surpassing production, driving prices to their highest levels in nearly half a century. This isn't merely a story of market dynamics – it's a complex narrative where climate change, shifting consumption patterns, and agricultural sustainability converge to reshape the future of the world's favorite beverage. The situation has reached a critical juncture as major producing regions struggle with severe weather disruptions. Brazil's drought-stricken Arabica crops and Vietnam's weather-battered Robusta production have created a perfect storm in the market. Volcafe's dramatic reduction of its 2025/26 Brazilian production forecast by 11 million bags underscores the severity of these challenges. China's 60% surge in coffee consumption over five years adds pressure to an already strained supply chain. Perhaps most concerning is the structural nature of these challenges. Traditional growing regions, from Kenya's prestigious AA bean farms to Brazil's vast coffee plantations, face existential threats from climate change. The delicate balance required for premium coffee production – specific humidity levels, temperature ranges, and rainfall patterns – is increasingly difficult to maintain. One industry expert notes that suitable growing areas continue to shrink, suggesting current market pressures may become the new normal rather than a temporary disruption. This convergence of factors presents both challenges and opportunities for investors, industry stakeholders, and consumers alike. As major producers like Nestlé and J.M. Smucker announce price increases for 2025, the industry stands at a crossroads. The future of coffee will likely be defined not just by how we manage immediate supply challenges, but by how we adapt to an*56C3VFGBHd innovate within these new environmental and market realities.
ICEUS:KC1!Long
by UDIS_View
Geopolitical tensions lend a tailwind to wheatThe geopolitics of wheat has once again come under the spotlight. Wheat prices jumped 4%1 as news broke out that a major dam Kakhovka in southern Ukraine had been destroyed. This is not the first mishap with the dam, as both Russia and Ukraine accused each other of planning sabotage back in October 2022. In Ukraine, flooding caused by the destroyed Kakhovka dam not only poses a risk to people, but also will be a major obstruction to agricultural transport and logistics. This casts further doubts on the recently lowered forecasts for Ukraine’s wheat production and exports owing to the destruction. The dam and reservoir situated on the Dnipro River is in the middle of Ukraine’s traditional main wheat growing area and is a major source of farm irrigation. No respite in Russia’s sabre-rattling There has been no respite in Russia’s sabre-rattling surrounding the Black Sea Grain Initiative, which was extended last month for an additional two months. The initiative has been instrumental in allowing Ukrainian grain flows to the world by creating a safe transit corridor. Russia has repeatedly specified the re-opening of the ammonia pipeline as a condition for renewing the grain corridor deal through the Black Sea. However, the ammonia pipeline was damaged a day before the Kakhovka dam was destroyed. This increases the risk that Russia could after all follow through on its threat and revoke the grain deal as early as next month. Net speculative positioning in wheat indicates a level of peak bearishness Market participants were caught off-guard evident from the knee-jerk reaction of wheat prices, up 4%2, intraday following the news. According to the Commodity Futures Trading Commission (CFTC), net speculative positioning in wheat futures was more than 2-standard deviations below the mean3, underscoring the extent of the bearish view held among investors. Dry weather to slash Australia’s next wheat crop by a third Another catalyst fuelling wheat prices higher was an early season estimate from Australian Bureau of Agricultural and Resource Economics and Science (ABARES) for a 34% slump in Australia’s wheat production in the coming season. The main reason cited by ABARES is the development of El Niño which is likely to suppress rainfall across large parts of Australia. Dry conditions and low soil moisture in the west and east coasts of Australia imply that much of the 2023-24 crop has been sown dry and will require adequate and timely rain to allow the plants to germinate. Wheat is a major winter crop in Australia with planting from April and the harvest starting in November. The expected onset of the El Niño conditions from July will likely see winter crop output fall significantly according to ABARES. According to the Bureau of Meteorology the dry weather has arrived, with the second driest May on record nationwide and the driest in Western Australia since observations began. Extreme weather conditions among top wheat suppliers to weigh on 2023/24 forecasts Across the globe, wild weather is affecting crops elsewhere, including Americas and North Africa. Europe is also being impacted by high temperatures and scant rainfall, increasing the risk of damage to the continent’s wheat crops. In France, the EU’s largest wheat producer, growing conditions in areas planted to wheat have deteriorated rapidly in recent weeks. The harvest in the largest wheat consumer China has also been affected by torrential rains, potentially boosting demand for wheat imports. Sources 1 Bloomberg as of 6 June 2023 2 Bloomberg as of 6 June 2023 3 Commodity Futures Trading Commission as of 30 May 2023
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by aneekaguptaWTE