The year 2023 turned out to be full of surprises! Economic forecasts anticipated a global recession, driven by elevated interest rates and soaring levels of public and private debt in the United States and worldwide. Contrary to expectations, interest rates climbed even higher, leading to significant bull runs in major stock indexes by the year’s end. Despite a 19% drop in 2022, the S&P 500 index nearly recovered all its losses, approaching its all-time peak. Questions linger about the unresolved debt issues, but as the market heads into 2024, optimism prevails, with expectations of rate reductions in the second half of the year.
Arabica Coffee, as highlighted in the DRWakefield Annual Coffee Market Report, began 2023 at 164.65 c/lb and closed the year at 188.30 c/lb, reflecting a notable 14.4% increase. However, Robusta outshone with a remarkable 74.2% surge throughout the year. Roasters’ growing preference for Robusta, coupled with lower harvest numbers from key producers, bolstered its pricing.
Currency dynamics were dominated by central bankers’ decisions on when and how much to raise interest rates. By year-end, acronyms like FED, BOE, FMOC, and J-Pow were familiar terms in discussions. Both the Euro and Pound strengthened throughout the year, and the rate adjustments in 2024 are anticipated to have a significant impact on their future strength.
Key Moments in 2023:
January:
The CFTC’s COT report on January 17th revealed a net short position of non-commercials at 43,940 lots, the lowest since before the pandemic. The market hit its second-lowest figure for the year at 145.30 c/lb on the 11th but rebounded to finish at 177.40 c/lb by month-end.
February:
Cyber-related issues led to the absence of the COT report for most of the month. Inflation figures took center stage, with the coffee market reaching a high of 187.55 c/lb on February 22nd.
March:
The collapse of Silicon Valley Bank, Silvergate, and Signature caused global financial jitters, impacting not only the US but also major European lenders like Credit Suisse.
April:
Around Easter, the coffee market surged, reaching a high of 197.90 c/lb on April 18th, driven by movements in the Brazilian Real and low crop figures from key origins.
May:
Certified Arabica stocks hit a 6-month low, reaching 598,000 bags. This, coupled with a 12% reduction in May and a 27% reduction in 2023, supported the market entering June.
June:
Central bankers’ rate pauses raised questions about the end of rate hikes. The FED held the Fed Funds Rate at 5-5.25%, indicating a pause, while Lagarde emphasized that more work was needed.
July:
Early July marked the strongest period for Pound Sterling (1.30) and the Euro (1.12). Colombian coffee differentials dipped, prompting concerns among other origins about adjusting prices or selling remaining stock.
August:
With Brazil’s harvest over 75% complete, solid volume estimates for the year, like Cooxupe’s expectation of nearly 6.5 million bags, emerged, representing a 30% increase.
September:
Weather in Brazil dominated headlines, shifting from the current harvest to rain and flower development for the 2024/5 harvest. Despite potential risks, the market fell towards the end of the month.
October:
The market hit the yearly low of 145 c/lb on October 10th but swiftly rebounded, closing the year at 188.30 c/lb.
November:
Both the Euro and Pound maintained momentum, while Moody’s downgrade of the US Credit rating weighed on the Greenback. A brief pullback preceded a December rebound, with the Euro finishing at 1.10 and the Pound at 1.27.
December:
Mercon Coffee Group, as reported in the DRWakefield DRW Annual Coffee Market Report, filed for bankruptcy, impacting Nicaragua, where it held the highest market share. Uncertainty surrounded the business’s future as discussions on the Fed’s potential rate cuts in 2024 gained traction. Cheers to what the new year may bring!