Coffee price forecast amid EU regulations, Vietnam drought risks

The price of coffee has moved sideways in the past few weeks but several catalysts could push it higher in the coming months. According to TradingView, coffee cash contract was trading at $188 on Tuesday, where it has been in the past few weeks. This price is about 7.70% below its highest point in 2023.

Coffee has numerous catalysts

Coffee has two potential catalysts in the coming weeks. The first one is from the European Union, one of the biggest coffee buyers in the world. The bloc recently unveiled new regulations that target most agricultural commodities like coffee and corn. 

Under these new regulations, the bloc will block coffee from countries that have increased deforestation. Some of the top countries that could be targeted are the likes of Kenya and Ethiopia.

Analysts believe that these measures will have an impact on coffee prices in the long run. For one, traders will likely buy coffee in these prohibited countries and then route it through other places. 

We have seen this happen in the energy industry, where countries like India are buying Russian crude oil and exporting it to other countries, including those in Europe and the US. Besides, coffee is a fungible commodity.

The other challenge that could push coffee prices higher is the ongoing drought in Vietnam, one of the biggest producers on the world. Estimates are that Vietnam’s coffee shipments will drop by about 20% this year at a time when demand is expected to keep rising. In a recent note, an analyst said:

“While we are still in the dry season and this weather is not unexpected, it’s noteworthy that rainfall has been at the lower end of the 10-year range, and temperatures are on the higher side.”

Vietnam is not the only coffee-producing country that is going through a drought. Brazil, the biggest coffee company, is also going through a prolonged drought. Estimates are that the country’s production will rise by 5% to 58 million bags this year. Colombia and Indonesia are also seeing droughts.

Coffee price forecast

Coffee chart by TradingView

The daily chart shows that the coffee price has moved sideways in the past few weeks. It has retreated from the YTD high of $203.76 to $188. Coffee is consolidating at the 50-day and 25-day Exponential Moving Averages (EMA).

It has also formed a bullish pennant pattern, which is a popular positive sign. The pennant pattern is now nearing its confluence zone. It has also formed a cup and handle pattern.

Therefore, there is a likelihood that the price will bounce back in the coming weeks. If this happens, the next point to watch will be at $203.75.