Key Highlights

● Arabica rose 1.16% to 288.75 US cents a pound in Friday's session.

● Prices are down 6.11% on the week and 26.37% on the year.

● Certified arabica stocks were 234,433 bags on 22 October, near September's 27-year low.

● Brazilian coffee shipments reached about 3.30 million bags by 22 October, up 43.2%.

Arabica coffee rose 1.16% to 288.75 US cents a pound in Friday's session on 30 October, a bounce inside a week that still leaves prices down 6.11%. The swing matters to two of the largest US coffee buyers, Starbucks (NASDAQ:SBUX) and Keurig Dr Pepper (NASDAQ:KDP), whose margins depend on what they pay for green coffee.

The benchmark is ICE US Coffee "C", quoted in US cents per pound. Over a longer view the market has been easing for a year: arabica is 26.37% lower than a year ago and 17.23% lower since the start of the year, though it is up 0.14% on the month. Earlier this week coffee touched its lowest level since 9 October as improving Supply prospects and continued selling pressure linked to the Brazilian real weighed on prices.

Low Stocks Against Rising Supply

Arabica is being pulled in two directions. Certified stocks are historically low, which raises concern about deliveries against nearby contracts. At the same time, Brazil's crop prospects are improving and shipments are running well ahead of last year. Low stocks tend to hold up nearby contracts, while better crop prospects weigh on later ones, which helps explain why the market has been choppy.

Brazil's Crop Looks Better

Weather has helped. September rainfall was well above the 15-year average in several Brazilian towns, and Guaxupé received 154 millimetres against 57.2 millimetres normally. A Brazilian research institute said flowering was within expectations and fruit set was good in most regions, naming heat as the main short-term concern.

Forecasters see better prospects for the 2027/28 crop, although larger supply does not yet amount to a surplus. Fruit set in the Cerrado Mineiro region can only be confirmed around December, which makes the coming weeks important.

Exports are strong. Brazilian shipments reached about 3.30 million bags by 22 October, up 43.2% on a year earlier.

The Real and Brazilian Selling

The Brazilian real fell sharply after President Luiz Inácio Lula da Silva's surprise re-election. It has recovered some ground since but remains below its pre-election level. A weaker real can make exports more profitable for Brazilian growers, which may encourage selling.

Stocks and Delivery

Certified arabica stocks were 239,748 bags on 21 October and 234,433 bags on 22 October, compared with a September low of 217,646 bags, described as a 27-year low. The International Coffee Organization's September indicator price averaged 262.18 US cents a pound, below the futures levels seen in October, although the two series are not directly comparable.

What It Means for Starbucks and Keurig Dr Pepper

Starbucks buys large volumes of green coffee. Lower arabica prices can reduce input costs, but the company uses Forward Contracts and fixed-price purchases, so any benefit arrives with a delay. Labour, rent, Demand and pricing decisions are at least as important to margins.

Keurig Dr Pepper sells coffee pods, brewers and ready-to-drink products and buys green coffee. Its exposure depends on hedges, pricing and the timing of price changes to retailers, and it has large beverage businesses unrelated to coffee. Lower prices do not help every business, because retailers may pass savings on to customers.

Coffee Watch: Fruit Set, Certified Stocks and Brazilian Exports

Daily ICE certified stock reports, official Brazilian export data, the International Coffee Organization's October report and Brazilian weather in November and December are the key indicators.

Prices could find support if heat or irregular rain hits fruit set, if certified stocks fall further or if the real strengthens. They could weaken if fruit set is confirmed as good, if shipments stay high, if the real weakens or if consumers cut purchases after high retail prices.