Coffee Prices Increase Sharply: Will the Fed Surely Cut Interest Rates in June?

Strong recovery on all domestic and international exchanges. In particular, the price of Robusta coffee reached 3,095 USD/ton. Domestic coffee prices increased compared to the same time yesterday, increasing from 1,000 to 1,100 VND/kg. Currently,  the trading price is very high, fluctuating between 83,800 and 84,600 VND/kg.

The General Director of Simexco, DakLak Le Duc Huy, commented: The coffee growing area has shrunk because people switched to growing durian, but thanks to still high productivity, this year’s coffee output is equal to last year. However, there is a problem: this year’s quantity is lacking due to having to make up for last year’s shortage, thus leading to a shortage of goods earlier, right from the first February of the year.

Currently, about 70% of coffee farmers have sold out, while 30% have not sold because their financial capacity is enough to cover costs. Mr. Trinh Duc Minh, Chairman of the Buon Ma Thuot Coffee Association, said that this crop year has a serious imbalance in supply and demand, causing price fluctuations. Major coffee-producing countries such as Brazil, Vietnam, Indonesia, and India are all affected by crop failure, with output decreasing by about 10-15%.

Expert Nguyen Quang Binh commented: Coffee prices increased again when US inflation information was announced as expected by the market. Prices in the US continued to increase in January 2024, but it was the lowest increase in nearly 3 years, reinforcing speculation about the possibility that the US Federal Reserve (Fed) will cut interest rates in June.

The highlight of this week’s market developments is that inventory on ICE exchanges, although being added regularly in recent days, caused prices to decrease in the short term but is still hovering at a 24-year low, which is the main reason driving the market. The price market increased again.

Meanwhile, supply continues to be limited, at least in the short term, supporting London floor futures prices to recover significantly in yesterday’s trading session. According to estimates by the General Statistics Office of Vietnam, coffee exports in February 2024 only reached 160 thousand tons, down nearly 20% compared to the same period last year, due to the month having a long Lunar New Year holiday. Commercial activities have slowed down somewhat.

According to Brazilian sources, although the country’s real currency continues to plummet to a 3-week low, it still does not encourage farmers to increase export sales when they do not really need the money. In addition, a market survey shows that coffee futures prices often increase right at the time when farmers in the world’s largest coffee exporting country harvest a new crop, with Conilon Robusta coffee being in April, May, and Arabica coffee in June and July.

Standard Arabica inventory on ICE-US continues to recover, contributing to strengthening the supply situation in the market. At the end of the February 27 session, the amount of certified Arabica coffee on ICE increased by 992 60-kg bags, bringing the total amount of coffee stored here to 333,771 60-kg bags.

Experts say that coffee prices increased again when US inflation information was announced, as expected by the market. Prices in the US continued to increase in January 2024, but it was the lowest increase in nearly 3 years, reinforcing speculation about the possibility that the US Federal Reserve (Fed) will definitely cut interest rates in June. .

A report released by the US Department of Commerce on February 29 showed that the country’s personal consumption expenditure (PCE) price index in January 2024 increased by 0.3% (compared to the previous month). In the 12 months through January 2024, US PCE increased by 2.4%—the lowest increase since February 2021—and followed a 2.6% increase in December 2023.

Excluding components such as volatile energy and food, the US core PCE price index increased by 0.4% in January 2024. Core inflation in January 2024 increased by 2.8% over the same period last year, the smallest increase since March 2021 and after a 2.9% increase in the last month of 2023.

The Fed typically monitors PCE to determine progress toward its 2% inflation target. A monthly inflation index of 0.2% is the level needed to bring inflation back to target. Following the report, Wall Street’s main stock indexes are expected to open higher on the same day as inflation-matched estimates, raising hopes of the Fed cutting interest rates in the near future.

Mr. Peter Andersen, founder of investment management company Andersen Capital Management, said that the latest data makes the market more optimistic that the US economy is on a solid foundation.


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