The surprise October election of far-right presidential candidate Jair Bolsonaro to lead Brazil initially bode well for the Brazilian real.
The currency is the benchmark for trade in coffee and sugar, making a steep rise against the US dollar welcome relief for growers. Arabica prices are closely tied to the real. To some extent as coffee prices begin to rise, a similar rise can be seen in the exchange rate.
Immediately following the election traders closed out their short positions. This led to a short-lived spike, reversing a rally. Since then the real has fallen 12% for the year, an indication of political uncertainty and slow growth.
A stronger currency encourages farmers to withhold or warehouse lower-priced product awaiting rising prices. December arabica futures were trading at $1.20 at press time as speculators gave way to producer selling. January robusta was $1,625 per metric ton, down from a $1,719 October high. Two fundamentals remain: Brazil is now sitting on its largest coffee harvest in history - up one-third over last year to an estimated 60 million 60-kilo bags and Vietnamese coffee exports are up 21.5% making supply bountiful in a year when demand is expected to fall about 2.58 million bags short of supply.