Coffee prices globally have fallen sharply in recent weeks as heightened market volatility and improved supply prospects weighed on prices, according to a Reuters report.
The decline has come after coffee prices surged to record highs earlier this year, driven by concerns over unfavourable weather conditions in major producing countries such as Brazil and Vietnam.
However, expectations of better harvests and easing supply fears have prompted investors to unwind positions, leading to a sharp correction in prices.
Much of the rally earlier this year was also driven by fears that El Niño could disrupt coffee production in key growing regions.
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The weather phenomenon, which is often associated with hotter and drier conditions, had raised concerns over crop yields in major producers such as Brazil and Vietnam.
According to Reuters, those concerns have since eased as weather conditions improved and fresh crop estimates pointed to better supplies. The shift in market sentiment has encouraged investors to unwind bullish bets, contributing to the recent slide in coffee futures
There have been huge losses on the Arabica coffee futures, while Robusta coffee prices have also declined because of changes in market sentiment.
According to analysts, the volatility in prices of coffee can be attributed to speculation in the market at a time when there was still uncertainty regarding the future supply of coffee.
"There's a vacuum of liquidity (and) a lot of these speculators are trading the intraday. They are out by (the market) close," a coffee analyst at a multinational agri-commodities trade house was reported as saying.
This decline in prices of coffee is likely to provide some respite to coffee producers, processors, and consumers who have been facing tough times because of high coffee prices in the past one year.
Reuters also reported that market participants are closely monitoring weather conditions in Brazil, which is the world's largest coffee producer, where the crop outlook remains a key factor influencing global prices.
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Vietnam, which is another major producer, is also expected to play a crucial role in determining supply trends in the coming months.
Despite the latest decline, coffee prices remain higher than historical averages, reflecting the lingering impact of supply disruptions experienced over the past few seasons. Industry experts say any unexpected weather event or disruption in production could once again tighten global supplies and trigger fresh price rallies.
The coffee market is likely to remain volatile in the near term as investors balance improving production forecasts against persistent climate risks and shifting global demand, according to the Reuters report.
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