May arabica coffee (KCK24) this morning is up +6.45 (+2.79%), and May ICE robusta coffee (RMK24) is up +48 (+1.21%).
Coffee prices are sharply higher this morning, with arabica climbing to a 1-1/2-year high and robusta coffee posting a new all-time high. Concerns about coffee cultivation in Brazil and Vietnam are fueling financial buying of coffee futures. Somar Meteorologia reported on Monday that Brazil’s Minas Gerais region received 15.8 mm of rain in the past week, or 74% of the historical average. Minas Gerais accounts for approximately 30% of Brazil’s arabica crop. Robusta coffee is growing to new record highs amid fears that excessive drought in Vietnam will limit the country’s robusta coffee production.
Tight robusta coffee supplies from Vietnam, the world’s largest producer of robusta coffee beans, are a major bullish factor. On March 26, Vietnam’s agriculture department projected that Vietnam’s coffee production in the 2023/24 crop year could drop by -20% to 1,472 MMT, the smallest crop in four years, due to drought. Also, the Vietnam Coffee Association said that Vietnam’s 2023/24 coffee exports could fall -20% y/y to 1,336 MM. In addition, Marex Group Plc forecasts a global 2024/25 robust coffee deficit of -2.7 million bags due to reduced production in Vietnam.
Fund buying supported this month’s rise in coffee prices. Last Friday’s weekly Commitment of Traders (COT) report showed funds boosted their long arabica coffee positions by 9,560 net long positions to a record 66,885 in the week ended April 9. However, the record-long position could also exacerbate long liquidity pressures in a. price drop
A downside factor for coffee futures is weakness in the Brazilian real (^USDBRL), which fell to a 1-year low against the dollar today. The weaker reality encourages export sales from Brazil’s coffee producers.
A negative factor for coffee was last Wednesday’s report from Cecafe, which showed that Brazil’s green coffee exports from Maro jumped +41% y/y to 3.9 million bags. Brazil is the largest producer of Arabic coffee in the world.
Another negative factor for coffee was last Monday’s report from the International Coffee Association (ICO), which showed that global coffee exports in February rose +6.8% y/y to 11.33 million bags, and total 2023/24 global coffee -exports from October-February increased + 11.1% y/y to 56.2 million bags.
A bearish factor for robusta was last Tuesday’s report from the General Customs of Vietnam, which showed that Vietnam’s sea coffee exports rose +17.7% m / m to 188,972 MT. Also, Vietnam’s Q1 coffee exports are up +5.9% y/y at 585,696 MT.
Coffee inventories have rebounded from historically low levels. ICE-monitored robusta coffee inventories on February 21 fell to a record low of 1,958 lots, although they recovered to a 3-month high on Monday of 3,376 lots. Also, ICE-monitored arabica coffee inventories fell to a 24-year low of 224,066 bags on Nov. 30, but they recovered to a 10-3/4-month high last Friday of 639,650 bags.
Larger coffee exports from Brazil are bearish for prices. Brazilian export group Comexim on February 1 raised its 2023/24 Brazil coffee export estimate to 44.9 million bags from a previous estimate of 41.5 million bags.
This year’s El Nino weather event is bullish for coffee prices. An El Nino pattern typically brings heavy rains to Brazil and drought to India, negatively affecting coffee crops. The El Nino event brought drought to Vietnam’s coffee regions this year, according to an official from Vietnam’s Institute of Meteorology, Hydrology and Climate Change.
In a bearish factor, the ICO projected on December 5 that 2023/24 global coffee production would climb +5.8% y/y to 178 million bags due to an exceptional off-biennial crop year. ICO also projects global coffee consumption 2023/24 to rise +2.2% y/y to 177 million bags, resulting in a 1 million bag coffee surplus.
The USDA’s Foreign Agricultural Service (FAS), in its biennial report released on December 21, projected that world coffee production in 2023/24 will increase +4.2% y/y to 171.4 million bags, with a +10.7% increase in arabica production to 97.3 million bags, and a -3.3% decrease in robusta production to 74.1 million bags. The USDA’s FAS forecasts that 2023/24 ending stocks will fall by -4.0% to 26.5 million bags from 27.6 million bags in 2022-23. USDA’s FAS projects that Brazil’s arabica production in 2023/24 would climb +12.8% y/y to 44.9 mln bags due to higher yields and increased planted area. The USDA’s FAS also predicts that 2023/24 coffee production in Colombia, the world’s second largest Arabica producer, will climb +7.5% y/y to 11.5 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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