Coffee prices decline amid new COVID-19 variant and strengthening dollar

By: Faith Maina
Faith Maina
Faith strives to break down complex developments so investors can make better informed decisions. When Faith is not immersed in the… read more.
on Dec 21, 2020
  • Coffee prices are down by 1.6% to trade at $123.20.
  • The US dollar has strengthened against the Brazilian Real with USDBRL trading at 5.15 BRL.
  • Coffee's demand woes continue as the UK raise an alarm about a new COVID-19 variant.

Coffee prices have continued to decline as demand for the beverage is still on the low. On Monday, the coffee futures were down by 1.6% to trade at $123.20. The continuing downward momentum is due to the strengthening of the US dollar against the Brazilian Real. Besides, the rising cases of COVID-19 have stalled activity in coffee chains and similar establishments.

coffee prices

Rallying USDBRL leads to a decline in coffee prices

Like most other commodities, coffee is traded in US dollars. As such, a strengthening dollar is bearish for coffee prices. Today, USDBRL is trading at 5.15 BRL. It is the highest price level since 3rd December 2020. The US dollar rose as a reaction to the new stimulus deal. On Sunday, Mitch McConnell, the Republican majority leader in the Senate stated that the lawmakers had agreed on an economic stimulus package of close to $900 billion.


Coffee’s demand woes continue

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The consumption of the coffee beverage in public setups such as restaurants, hotels, offices, and airlines is significant to the demand of the beans. Thanks to the ongoing coronavirus pandemic, people are no longer flocking in these areas. The result is the reduced demand for the commodity, and the subsequent decline in coffee prices.      

Notably, its demand woes seem to heighten after the UK raised an alarm about a new COVID-19 strain. The nation’s health officials have sited the variant as the reason behind yesterday’s over 35,000 new cases.  In an attempt to deal with the situation, most parts within the UK are now on a strict lockdown. Besides, most European countries have banned flights from the UK.

Coffee market has looked past the ongoing drought in Brazil

Brazil is the leading producer of coffee. The nation produces around 40% of the beans consumed globally. As such, relevant events in the country often affect coffee prices. Currently, the unfavourable weather conditions are lowering prospects of a good crop in the coming season.

Last week, Judy Ganes of J. Ganes Consulting said, “I have never, ever seen anything like this. So far, I’ve just seen skeletal trees or trees that look lush from afar and then you get closer to them, and there’s no coffee.” Minas Gerais, which accounts for about 70% of the arabica variety grown in the country, is one of the affected regions.  

Notably, investors in the coffee market seem not to have factored in the ongoing drought in this South American country. Those looking to invest in commodities had interpreted the recent rainfall as the end of La Nina. However, the showers have been underwhelming. In most parts of the country, the rains are about 20-50% of the normal amount. A continuation of this harsh weather condition is bound to impact coffee supply in the coming year.

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