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Coffee bean short investors may benefit from currency depreciation in emerging market countries

Published: 2024-09-17 Author: World Gafei
Last Updated: 2024/09/17, Short investors in coffee beans are likely to benefit from the devaluation of emerging market currencies. As a result of economic stagnation and the collapse of oil prices, the currencies of Brazil and Colombia, the world's largest supplier of Arabica coffee (Arabica coffee), have depreciated, with the Brazilian real down 25 per cent so far this year. In the past six months, the Brazilian real and the Colombian peso have exchanged exchange rates against the dollar.

Coffee bean bears may benefit from currency depreciation in emerging markets.

Brazil and Colombia, the world's largest suppliers of Arabica coffee, have lost their currencies because of economic stagnation and collapsing oil prices, with the Brazilian real down 25 percent this year. Brazil's real and Colombia peso have lost the most value against the dollar over the past six months among emerging market currencies.

Latin American currency depreciation stimulates coffee bean exports, increasing global coffee bean supply. Depending on supply and demand, coffee bean prices will also be under pressure.

Brazil's exports rose 300,000 bales to 3 million bales in August from 2.7 million bales a year earlier, according to Rio de Janeiro-based brokerage Flavour Coffee, the third consecutive monthly increase. A packet of coffee beans weighs 60 kilograms. Arabica coffee futures fell for a fifth straight day, hitting a 1 1/2-year low, Reuters reported earlier.

Bearishness on coffee among U.S. money managers also rose to its highest level since July last year, as coffee bean prices fell for three weeks in a row, the longest since March.

Hedge funds held 18392 net short positions in coffee bean futures and options as of Sept. 1, according to the latest figures released by the Futures Trading Commission. Money managers have been bearish on coffee bean prices almost every week since February.

Artur Manoel Passos, economist and commodities analyst at Itau Unibanco Holding SA, told Bloomberg: "Local coffee growers have every reason to increase exports. Emerging market currency depreciation could have an impact on coffee prices in the second quarter of next year." Passos was the most accurate analyst for coffee bean price forecasts in the second quarter, according to a ranking compiled by Bloomberg.

Brazil's coffee plantations are slowly recovering from the drought of 2014, even as the devaluation encourages producers to sell. Meanwhile, demand for coffee beans is climbing.

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