(Bloomberg) — The threat of a coming squeeze in Europe’s coffee supplies is stoking volatility as traders worry that a new law to protect forests will curb imports.
Futures for September delivery versus December contracts are surging in New York, widening the spread between them to the highest since it started trading in January 2022. That suggests increased interest in taking coffee deliveries at the September expiry, said Tomas Araujo, trading associate at StoneX.
That’s the last time traders wanting to bring beans into the European Union can buy from New York and London exchanges without concern about the deforestation regulation. Taking delivery of the December contract would be risky because traders may not have enough time to clear it through customs before the law takes effect at year’s end.
“The market is concerned that in either terminal we will start to see decertifications,” Araujo said. “If we start to see draws from now until the end of the year, that’s going to put even more pressure on the spot market.”
The EU aims to slash the 10% of global deforestation — and associated loss of biodiversity — linked to its consumption of commodities such as coffee, cocoa, timber and beef. The pending law requires every bean, log and cow entering the region to be traced to their origins, or the bloc will levy hefty penalties.
Prices of both the high-end arabica beans and the cheaper robusta variety have already spiked this year due to major supply disruptions from Vietnam to Brazil.
In London, robusta futures for September delivery are trading at a premium of about $190 over the November contract. Robusta stocks at exchange warehouses have started falling, raising fears that some traders are taking beans out.
About 98% of arabica coffee stockpiles are held in ports in Europe, mainly Antwerp. Out of about 800,000 bags, only 15% are considered EUDR-compliant, leaving the rest classified as transition stock subject to penalties after Dec. 30.
“This could potentially trigger another period of angst about deliverable supplies,” Judith Ganes, president of New York-based J. Ganes Consulting, said in a research note.
–With assistance from Dayanne Sousa.
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