March arabica coffee (KCH24) on Monday closed +6.95 (+3.92%), and Jan ICE robusta coffee (RMF24) closed +84 (+3.27%).
Coffee prices rose sharply on Monday, with robusta posting a 3-week high. Dry weather in Brazil risks damaging coffee crops and is bullish for prices. Somar Meteorologia reported on Monday that the Brazilian region of Minas Gerais received 36.5 mm of rain in the past week, or 53% of the historical average. Minas Gerais accounts for approximately 30% of Brazil’s arabica crop.
In a bullish factor for robust coffee, Vietnam’s General Customs reported on Monday that Vietnam’s Nov coffee exports rose +173% m/m but fell -7.4% y/y to 119,297 MT and that coffee exports in the first eleven months of this year. (Jan-Nov) fell -10.4% y/y to 1.40 MMT. Also, Vietnam’s agriculture department on November 3 projected that Vietnam’s coffee production in the 2023/24 crop year could drop by -10% to 1,656 MMT, the smallest crop in four years, due to drought.
An increase in world coffee exports is bearish for prices after the International Coffee Organization (ICO) reported last Friday that October global coffee exports rose +0.9% y/y to 9.53 million bags.
A down factor for coffee is reduced supply fears. Last Tuesday, the ICO projected 2023/24 global coffee production climbed +5.8% y/y to 178 million bags due to an exceptional off-biennial harvest 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.
Signs of higher coffee exports are bearish for prices. On December 1, Brazil’s Trade Ministry reported that Brazil’s coffee exports (not roasted) rose +8.5% y/y to 235,000 MT. Also Honduras, Central America’s largest coffee producing country, reported that its exports of new coffee jumped +63% y/y to 110,413 bags.
Declining ICE coffee inventories are bullish for coffee prices, as ICE monetized Arabica coffee inventories fell to a 24-year low of 224,066 bags last Thursday. Meanwhile, on Monday, ICE-monitored robusta coffee inventories stood at 3,476 lots, moderately above the record low of 3,374 lots posted on August 31.
Robusta coffee has support after the Vietnam Coffee Cocoa Association last Tuesday projected that 2023/24 Vietnam coffee production will fall to 1.6 MMT to 1.7 MMT, down from 1.78 MMT a year earlier. They also project that Vietnam’s coffee exports in 2023/24 may fall -15% y/y to 1,411 MMT from 1,660 MMT in 2022/23.
Robusta coffee has had transmission support since November 22 when the USDA’s FAS cut its 2023/24 Vietnam coffee production estimate to 27.8 million bags from a May estimate of 31.3 million bags, citing unfavorable weather due to the El Nino weather pattern. The USDA’s FAS also cut its 2023/24 Vietnam coffee stocks estimate to 359,000 bags from a May estimate of 2.76 million bags. Vietnam is the largest producer of robusta coffee in the world.
On the downside, the USDA’s Foreign Agricultural Service (FAS) on November 22 projected that Brazil’s 2023/24 arabica production 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.
A bearish factor for coffee prices is an increase in Brazil’s coffee exports after export group Cecafe reported on November 14 that Brazil’s green coffee exports jumped +24% y/y to 4 million bags.
A negative factor for coffee was Rabobank’s projection on November 3 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 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.
USDA’s FAS forecast in its June biennial report, published on 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 robust 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.
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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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