A strengthening Brazilian real currency delivered marginal coffee gains for September raw bean deliveries on August 15, 2024.
Both Arabica and Robusta gained in prices by 1.22% and 2.21% respectively at the International Coffee Exchange (ICE) in New York .
The rise happened after producers in Brazil held back exports due to the strengthening of the local currency against the dollar.
The currency’s strength usually brings low cash conversions for Brazil’s exporters, who usually hold back sales. This in turn causes temporary supply dips and international price spikes.
Hence, the price on the 15th hiked by 0.86% day-on-day to settle at $2.40 a pound in the futures markets.
According to Market Insider’s data, this was the second straight day of improvement after another spike on Thursday the 14th.
Though below its 52-week peak of $2.54 a pound, the mid-August 2024 price is still beyond the period’s low of $1.44.
Interestingly, these coffee gains mark a recovery following a global price decline in the first week of August 2024. Even Vietnam’s world-beating Robusta beans sold lowly wholesale at 118,400 VND ($4.72), way below the end July price.
At the time, the then-ongoing harvest in Brazil had caused world prices to lose some momentum as supplies momentarily revamped.
Coffee Gains on Currency Strength
The current rally however has nothing to do with harvest pressure but rather currency strength.
Since early July, the Brazilian real has been showing spurts of strength against the dollar, favoring especially Arabica prices. Again, this is due to producer withdrawal from selling their beans until the rate can weaken and favor them via cash conversion.
In reality, the currency has actually cumulatively decreased in value against the dollar from a yearlong perspective. Its highest point in 2024 was in January at 1 BRL=$0.20 dollars while its lowest was August 1 at 1 BRL=$0.1739.
However, during this gradual decrease, the months of July and August have been recouping the currency. For example between July 1 and July 10, the value spiked from a low of 1 BRL=$0.1768 to 1 BRL=$0.1846. The same has happened lately, from an August 1 low of 1 BRL=$0.1739 to an August 13 high of 1 BRL=$0.1833.
In short, there is a lot to coffee gains, not least of all the external factor of changing currency rates. To learn more about how Brazil’s real favors or disfavors coffee prices, here is a broad perspective via statistics.
Coffee Price Vs. Brazil Exchange Rate Statistics
Producer nations such as Brazil contribute to global coffee price swings by not only their harvest levels but currency rate changes against the dollar. A Brazilian supplier will get less local cash conversion when the real is strong than when it is weak. For example at the strong August 13, 2024 exchange rate of 1 BRL=$0.1846, the seller in Brazil gets less local cash conversion per sale than during the low August 1, 2024 exchange rate of 1 BRL=$0.1739.
How has currency in Brazil affected coffee prices historically?
From January 1 2020 to December 1 2022, the exchange rate of the Brazilian real changed many times but one time it changed by as much as 140% against the dollar. During these upward and downward changes, coffee prices also changed. According to Vietnam-based trade company XLII, coffee prices increased by over 80% in August 1 2021. During this same timeline, the Brazil real had also strengthened by over 60% against the dollar since January 2020. The reverse occurred in December 2022 when the real’s exchange rate dipped below 40% since its January 2020 rate. Likewise, coffee prices went down below the October 2022 previous increase.