(Bloomberg) -- Arabica coffee futures are on track for the biggest monthly jump in more than a decade, with a rally fueled by global supply concerns and fears that exporters will face financial stress.
Traders are watching for more news that exporters are struggling with their finances, Sucden Financial broker Harry Howard wrote in a Friday note. That’s after two Brazilian companies jointly filed a request with a local court this week asking for a 60-day grace period while renegotiating with creditors.
The spike in coffee prices means exporters face increasing costs of hedging, due to higher margin calls. Part of the recent rally can be explained by some of those market participants unwinding their hedges, and buying futures to cover short positions, according to traders.
New York arabica futures wavered on Friday, still on track for a gain of more than 30% this month and close to a record high. Prices for the variety used in specialty brews have soared around 70% this year.
A severe drought earlier this year in top coffee grower Brazil has cast doubt about the size of the country’s crop next season. That follows fears about the cheaper robusta variety produced in Vietnam, hit by dry weather at the start of the growing season and heavy rains as the harvest started.
“Two years of global production below consumption left stocks in destination countries about a third below their long-term average,” said Steve Pollard, a coffee market analyst at Marex Group. “Early reports of the 2025/26 Brazil cherry set point to another year-on-year decline in production, meaning there will be no relief in destination markets for the foreseeable future.”
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