Coffee price outlook: Brazilian crisis could spark Arabica coffee surge

Coffee prices have been on the slide throughout much of April, with global disinflation also being seen throughout this market.

However, we are now starting to see signs of a resurgence, with stories emerging of a potential interruption to output from the likes of Brazil.

Brazil is the world’s second largest coffee producer, which has been the case for over 150 years. However, the coronavirus crisis is hitting Brazil heavily, with the country now seeing the second highest daily death rate after the US.

Up until now, Brazilian President Jair Bolsonaro has taken an incredibly weak response to the virus, pushing back against lockdown and social distancing measures implemented by mayors and state governors. With the virus rife in a country with overcrowded favelas in the cities, the control of Covid-19 is difficult even with consistent and stringent measures.

Coronavirus could lead to lower coffee supply in Brazil

However, there is a good chance that we will see the virus spread into the country, through farming migration, alongside logging and mining. With that in mind, coffee producers are faced with the decision to either halt production or run the risk of seeing coronavirus spread throughout their employees.

Many producers will struggle to get the employees they need to harvest their entire crop, with travel bans also stifling movement throughout South America's biggest nation.

Unfortunately the harvest of Arabica coffee beans should be taking place later this month, with the Robusta harvest already largely complete.

Unfortunately, the surge in Brazilian Covid-19 deaths could impact supply if plantations cannot pick the beans fast enough to avoid them falling to the ground and rotting. The depth of the crisis remains to be seen, yet the coronavirus crisis shows little sign of slowing down. With Brazil now exhibiting the highest R value (rate of reproduction), this is one country that looks far from seeing any plateau or decline in deaths for the time being.

Coffee price: technical analysis

Looking at the potential market implications of this decline in supply, we would expect to see the Arabica price rise as the commodity becomes less abundant. The daily chart highlights the recent rise following a month-long decline into the 10,402 level.

Price action since mid-February has been exhibiting higher lows, despite the long-term downtrend in place. This current supply squeeze could subsequently result in a period of upside, with the price seemingly bottomed out.

The hourly chart highlights this recent reversal, with the price currently consolidation after another leg higher on Friday. While we could see some downside over the short term, we are likely to see further upside as we see a greater focus on the growth of Brazilian Covid-19 cases and the impact it could have upon their coffee harvest. With that in mind, a bullish outlook is in play, with a break below 10,665 required to negate that view.