Arabica coffee prices remain extremely volatile

From AB Capital's The Opening Bell: Three Moves

Event

Arabica coffee prices remain extremely volatile, falling 9.2% overnight after Monday's 16% surge, the biggest one-day increase in 26 years. The rally was driven by a mix of genuine supply concerns, including Brazil's rain-delayed harvest, quality risks and low ICE inventories, as well as technical factors, particularly aggressive short covering. Despite the recent spike, coffee remains around 5% below the start of the year.

View

Coffee is only around 8-12% of group input costs based on our estimates, so even a sustained 10% to 20% increase in prices would imply just around 25bp to 50bp of pre-mitigation margin pressure. This is before procurement coverage, pricing actions and other easing input costs. The current coffee spike therefore does not derail our margin recovery thesis. The real risk is sentiment, not earnings. Coffee headlines can pressure JFC disproportionately because the market still remembers the earlier coffee inflation shock. But the setup today is different. Much of the near-term requirement is already covered, cheaper beans should hit cost of goods sold (COGS) from September, and management has pricing flexibility. The only development that could materially change our view is a genuine supply shock from a potential Super El Niño during Brazil's September to October flowering season, a risk to monitor but not our base case.

Catalyst

The key catalyst for JFC is not the daily coffee price but when its cheaper procured inventory begins flowing through COGS. Management expects this benefit to start from September, supporting the 2H26 margin recovery alongside easing chicken and freight costs. Importantly, JFC has around six months of coffee requirements covered from today, significantly reducing near-term exposure to spot-price volatility.

Action

Buy any coffee-driven weakness in JFC. We would not reduce positions because of short-term arabica volatility. The more important earnings signals remain healthy same-store sales growth (SSSG), sequentially improving monthly trends, and the expected 2H26 margin recovery. With May better than April and June better than May, and SSSG still healthy at roughly 6% for Jollibee Philippines and 5% for Mang Inasal despite a high election-related base, the fundamental trajectory is improving while coffee remains a manageable cost risk.

Disclaimer: The information, analyses, and views contained herein is based on sources which we, AB Capital Securities, believe are reliable, but is not guaranteed by us and is not to be considered all inclusive. It is not to be construed as an offer or solicitation of an offer to sell or buy the securities herein mentioned. AB Capital Securities and its Directors and Officers and/or members of their families may have a position in the securities herein mentioned and may make purchases and/or sales of the securities from time to time in the open-market and otherwise.