Coffee Prices Continue to Increase: Factors Driving Prices Still Appear, Fed Maintains Interest Rates

Continuing to increase after the previous very strong increase, in the context of coffee, prices purchased in the domestic markets of Vietnam and Indonesia have increased, but it is still difficult to buy. Arabica coffee price reached 188.65 US cents per lb after increasing 1.84%.

This morning, on the US market, the US Dollar Index (DXY), measuring fluctuations in the greenback with six major currencies (EUR, JPY, GBP, CAD, SEK, and CHF), decreased by 0.93%, down to 102.93. According to forecasts, the output of the crop being harvested in Vietnam, mostly Robusta, may decrease very sharply—at least about 0.3 million tons—due to conversion.

New crop Robusta coffee in the Vietnamese domestic market is currently very difficult to buy. Indonesia’s grade 4 Sumatra coffee last week had a difference of up to 700 USD/ton compared to the London price that has not yet been delivered. Concerns about global coffee production are uncertain, while factors contributing to a rising price market continue to appear.

The dangers of the El Nino weather phenomenon are near, while the National Institute of Meteorology (Inmet) of Brazil has just issued a special warning about a period of hot, dry weather exceeding the threshold of 40 degrees Celsius in the next few days, which will cover the whole country. the country’s main coffee-growing regions for at least four days, possibly putting a strain on Brazil’s output for next year’s crop.

The Vietnam Coffee and Cocoa Association (Vicofa) forecasts that the output of the currently harvested crop will decrease to 1.6–1.7 million tons from 1.78 million tons the previous year. However, the above forecast did not receive approval from coffee growers. According to them, this year’s crop output decreased by at least about 0.3 million tons because many planting areas were converted and intercropped with high-value crops.

Coffee traders in Southeast Asia said that new crop Robusta coffee in the Vietnamese domestic market is currently very difficult to buy.
The market is currently supported by the decision of the US Federal Reserve (Fed). On December 13 (local time, the early morning of December 14 Vietnam time), after a 2-day meeting, the Fed decided to keep interest rates unchanged at 5.25%–5.50% and signaled that the agency’s period of tightening monetary policy may have ended and interest rates will decrease in 2024.

In a statement after the meeting, Fed policymakers assessed that US inflation had eased in 2023 but remained at a high level. Fed officials also said that the agency will monitor data and developments in the US economy to consider the need for additional interest rate increases.

Economists said the assessments showed notable changes in the Fed’s stance and were a signal that lending costs are unlikely to rise much further. Most Fed policymakers (17/19) also unanimously forecast the policy rate at the end of 2024 will be lower than current levels, with the median forecast suggesting a 0.75% decrease in percentage points compared to the current level of 5.25%–5.50%. Meanwhile, no Fed official predicts interest rates will be higher by the end of next year.

Source: Tincaphe.com