Dec arabica coffee (KCZ23) on Friday closed down -5.15 (-2.92%), and Jan ICE robusta coffee (RMF24) closed down -45 (-1.75%).
Coffee prices settled moderately lower on Friday, with Arabica falling to a 1-1/2 week low. Arabica coffee retreated for a second day on Friday due to long liquidation pressures due to forecasts of rain in Brazil early next week, which should boost soil moisture levels and improve coffee yields.
Another bearish factor for coffee prices is an increase in Brazil’s coffee exports after export group Cecafe reported on Tuesday that Brazil’s green coffee exports jumped +24% y/y to 4 million bags.
Shrinking ICE coffee inventories are supporting coffee prices. Arabica coffee inventories monitored by ICE on Thursday fell to a 24-year low of 289,699 bags. Meanwhile, ICE-monitored robusta coffee inventories on Friday stood at 3,873 lots, modestly above the record low of 3,374 lots posted on August 31.
Below normal rain in Brazil could slow down coffee yields and support prices. Somar Meteorologia reported on Monday that Brazil’s Minas Gerais region received 0.8 mm of rain in the past week, or 2% of the historical average. Minas Gerais accounts for approximately 30% of Brazil’s arabica crop.
In a supportive factor for robust coffee, Vietnam’s agriculture department last Friday projected that Vietnam’s coffee production in the 2023/24 crop year could fall by -10% to 1,656 MMT, the smallest crop in four years, due to drought. Also, the General Customs of Vietnam reported last Wednesday that Vietnam’s coffee exports in October fell -14.2% m/m and -48.8% y/y to 43,725 MT and that coffee exports in the first ten months of this year (Jan-Oct) fell. -10.7% y/y to 1.3 MMT. Vietnam is the largest producer of robusta coffee in the world.
A negative factor for coffee was Rabobank’s projection last Friday, which said that due to favorable weather boosting coffee yields, Brazil’s coffee exports in the 12 months ending June 2024 could increase by up to +18% y/y to 42 million of bags
The US Climate Prediction Center on June 8 declared an El Nino weather event, which is likely to support coffee prices. An El Nino pattern typically brings heavy rains to Brazil and drought to India, negatively affecting coffee crops. The El Nino event may bring drought to Vietnam’s coffee regions at the end of this year and early 2024, according to an official from Vietnam’s Institute of Meteorology, Hydrology and Climate Change.
Global coffee exports are decreasing, as the International Coffee Organization (ICO) on September 14 reported that global coffee exports during October-July decreased -5.7% y/y at 103.736 mln bags. Cecafe reported on October 11 that Brazil’s exports of Sep arabica coffee fell -20% y/y to 2.4 million bags, the lowest for that month in 6 years. However, exports of Sep robusta from Brazil more than quadrupled to 624,999 bags. Brazil is the largest producer of Arabic coffee in the world and the second largest producer of robusta coffee.
The USDA’s Foreign Agricultural Service forecast in its June biennial report, released June 22, that world coffee production in 2023/24 will increase +2.5% y/y to 174.3 million bags, with a +6.9% increase in arabica production to 96.3 million. bags, and a -2.4% decrease in robusta production to 78.0 million bags. USDA FAS forecasts that 2023/24 Brazilian coffee production will rise by +14.5% to 67.9 million bags, while Vietnam’s 2023/24 production will fall -3.5% to 30.2 million bags . USDA FAS forecasts that 2023/24 ending stocks will increase by +0.8% to 31.8 million bags from 31.6 million bags in 2022-23.
Illustrating a tight coffee supply in 2022/23, the ICO said the 2022/23 global coffee market deficit widened to -7.3 million bags from a -7.1 million bag deficit in 2021/22. ICO reported that 2022/23 global coffee production increased +1.7% y/y to 171.27 mln bags, but 2022/23 global coffee consumption increased +1.7% y/y to a larger 178.53 mln bags.
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As of the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is for informational purposes only. For more information, please see Barchart’s Disclosure Policy here.
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