Coffee price outlook: Brazilian crisis could spark Arabica coffee surge

Brazilian Covid-19 cases are on the rise, with Arabica coffee prices looking set to rise as traders consider the potential impact for the world’s biggest producer.

Coffee prices have been on the slide throughout much of April, with global disinflation also being seen throughout this market.

However, we are now starting to see signs of a resurgence, with stories emerging of a potential interruption to output from the likes of Brazil.

Brazil is the world’s second largest coffee producer, which has been the case for over 150 years. However, the coronavirus crisis is hitting Brazil heavily, with the country now seeing the second highest daily death rate after the US.

Up until now, Brazilian President Jair Bolsonaro has taken an incredibly weak response to the virus, pushing back against lockdown and social distancing measures implemented by mayors and state governors. With the virus rife in a country with overcrowded favelas in the cities, the control of Covid-19 is difficult even with consistent and stringent measures.

Coronavirus could lead to lower coffee supply in Brazil

However, there is a good chance that we will see the virus spread into the country, through farming migration, alongside logging and mining. With that in mind, coffee producers are faced with the decision to either halt production or run the risk of seeing coronavirus spread throughout their employees.

Many producers will struggle to get the employees they need to harvest their entire crop, with travel bans also stifling movement throughout South America's biggest nation.

Unfortunately the harvest of Arabica coffee beans should be taking place later this month, with the Robusta harvest already largely complete.

Unfortunately, the surge in Brazilian Covid-19 deaths could impact supply if plantations cannot pick the beans fast enough to avoid them falling to the ground and rotting. The depth of the crisis remains to be seen, yet the coronavirus crisis shows little sign of slowing down. With Brazil now exhibiting the highest R value (rate of reproduction), this is one country that looks far from seeing any plateau or decline in deaths for the time being.

Coffee price: technical analysis

Looking at the potential market implications of this decline in supply, we would expect to see the Arabica price rise as the commodity becomes less abundant. The daily chart highlights the recent rise following a month-long decline into the 10,402 level.

Price action since mid-February has been exhibiting higher lows, despite the long-term downtrend in place. This current supply squeeze could subsequently result in a period of upside, with the price seemingly bottomed out.

The hourly chart highlights this recent reversal, with the price currently consolidation after another leg higher on Friday. While we could see some downside over the short term, we are likely to see further upside as we see a greater focus on the growth of Brazilian Covid-19 cases and the impact it could have upon their coffee harvest. With that in mind, a bullish outlook is in play, with a break below 10,665 required to negate that view.


This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

Seize a share opportunity today

Go long or short on thousands of international stocks.

  • Increase your market exposure with leverage
  • Get spreads from just 0.1% on major global shares
  • Trade CFDs straight into order books with direct market access

Live prices on most popular markets

  • Forex
  • Shares
  • Indices
liveprices.javascriptrequired
liveprices.javascriptrequired
liveprices.javascriptrequired

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.