Coffee Tumbles on ‘Surprising’ USDA Surplus View, Omicron Fears

Arabica coffee prices fell to a four-week low, weighed down by a more optimistic supply outlook and a broader market selloff.

The United States Department of Agriculture increased its estimate of global coffee output on Friday, owing primarily to improved production in Honduras and Guatemala. Additionally, the agency lowered its demand forecast slightly, resulting in a global surplus of about 2.6 million bags, compared to a small deficit in June.

March futures in New York fell as much as 5% to $2.231 a pound, the lowest price for a most-active contract since mid-November. The price is still approximately 75% higher this year due to adverse weather conditions in top suppliers Brazil and Colombia.

The USDA report surprised analysts because only a few months ago, Hernando de la Roche, senior vice president for StoneX Financial Inc. in Miami, predicted a much larger deficit. “Consumption data also indicated that it hasn’t been as good. This modifies the game slightly.”

Equities and commodities – led by crude oil – fell as European nations tightened restrictions in response to an outbreak of infections caused by the Covid-19 variant and as US President Joe Biden’s fiscal stimulus plan was derailed.

Coffee and lumber are expected to be among the best agricultural performers in 2021.

Coffee may continue to face pressure ahead of the commodity indexes’ annual rebalancing in early January. As a top performer, the beans are expected to see nett contract sales, according to ABN AMRO analysts. For three weeks, funds have been reducing their nett bullish position, according to government data.

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