May arabica coffee (KCK24) this morning is down -0.75 (-0.41%), and May ICE robusta coffee (RMK24) is down -23 (-0.75%).
Coffee prices this morning are moderately lower. A recovery in ICE-controlled coffee inventories is weighing on coffee prices after robusta inventories rose to a 2-week high today and arabica inventories climbed to a 3-1/2 month high on Tuesday.
Coffee prices on Tuesday posted 5-week lows on Monday’s negative carryover as concerns over dry conditions in Brazil temporarily eased. Somar Meteorologia reported on Monday that the Brazilian region of Minas Gerais received 59.5 mm of rain in the past week, or 131% of the historical average. Minas Gerais accounts for approximately 30% of Brazil’s arabica crop.
Coffee inventories are tight, which is a supportive factor for coffee prices. Last Wednesday, ICE-controlled robusta coffee inventories fell to a record low of 1,958 lots, although they recovered modestly to a 2-week high today of 2,453 lots. ICE-monitored arabica coffee inventories fell to a 24-year low of 224,066 bags on Nov. 30, though they recovered modestly to a 3-1/2-month high Tuesday of 333,771 bags.
Larger coffee exports from Brazil are bearish for prices. Cecafe reported on February 14 that Brazil’s coffee exports jumped +45% y/y to 3.7 million bags. Brazil is the largest producer of Arabic coffee in the world. Also, The International Coffee Organization (ICO) reported on February 14 that global coffee exports rose +13.6% y/y to 12.168 million bags, and from Oct-Dec, global coffee exports rose +6.8% y/y y to 32.419 million bags. .
A negative factor for coffee was Safras & Mercado’s February 5 increase to its 2022/23 Brazil coffee crop estimate to 61.1 million bags from a previous estimate of 58.9 million bags. Also, 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.
Tight robusta coffee supplies from Vietnam are bullish for robusta prices because Vietnam is the world’s largest producer of robusta coffee beans. Vietnam’s General Statistics Office reported on February 21 that Vietnam’s coffee exports rose +14.8% m/m and +67.4% y/y to 238,266 MT. 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. Meanwhile, the Vietnam Coffee Association on December 5 projected that 2023/24 Vietnam coffee production will fall to 1.6 MMT-1.7 MMT, down from 1.78 MMT a year earlier.
A bearish factor for Arabica was the projection by Conab, Brazil’s crop forecasting agency, on January 25 that Brazil’s Arabica coffee production in 2024 would climb +5.4% y/y to 58.1 million bags. The 2024 coffee crop is seen as the most productive of Brazil’s two-year coffee cycle.
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 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.
In a bearish factor, the International Coffee Organization (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 published on December 21, projected that world coffee production in 2023/24 will increase +4.2% y/y to 171.4 million bags, with +10.7% increase in arabica production to +10.7%. 97.3 million bags, and a -3.3% decrease in robust 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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