March arabica coffee (KCH24) closed up +1.55 (+0.80%) on Tuesday, and Jan ICE robusta coffee (RMF24) did not trade with markets in the UK closed for the Boxing Day holiday.
Arabica coffee prices Tuesday rose moderately higher as a rally in the Brazilian real sparked short covering in arabica coffee futures. The real (^USDBRL) on Tuesday climbed to a 4-1/2 month high against the dollar, discouraging export selling from Brazil's coffee producers.
In a bullish factor for coffee prices, the USDA in its biannual report released last Thursday, cut its 2023/24 global coffee production and ending stocks estimates. The USDA cut its 2023/24 global coffee production estimate to 171.4 million bags from a June estimate of 174.3 million bags. The USDA also cut its 2023/24 global coffee ending stocks estimate to 26.5 million bags from a June estimate of 31.8 million bags. In a bullish factor for robusta, the USDA cut its 2023/24 global robusta production estimate to 74.1 million bags from a June estimate of 78.0 million bags.
Last Tuesday, arabica coffee rallied to an 8-1/4 month high on concerns that ongoing dry weather in Brazil will damage coffee crops. Last Monday, Somar Meteorologia reported that Brazil's Minas Gerais region received only 35.1 mm of rainfall in the past week, or 65% of the historical average. Minas Gerais accounts for about 30% of Brazil's arabica crop.
Tight robusta coffee supplies propelled robusta prices last Thursday to a record high. Vietnam's General Department of Customs last Monday reported 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 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 would fall to 1.6 MMT-1.7 MMT, down from 1.78 MMT a year earlier. The group also projected that Vietnam's coffee exports in 2023/24 may fall -15 % y/y to 1.411 MMT from 1.660 MMT in 2022/23.
Low coffee inventories are supportive of coffee prices. ICE-monitored arabica coffee inventories fell to a 24-year low of 224,066 bags on November 30 and were just mildly above that level last Friday at 247,912 bags. ICE-monitored robusta coffee inventories last Friday were at 3,522 lots, just mildly above the record low of 3,374 lots posted on August 31.
The U.S. Climate Prediction Center on June 8 declared an El Nino weather event, which is likely to be supportive of coffee prices. An El Nino pattern typically brings heavy rains to Brazil and drought to India, negatively impacting coffee crop production. The El Nino event may bring drought to Vietnam's coffee areas late this year and in early 2024, according to an official from Vietnam's Institute of Meteorology, Hydrology, and Climate Change.
An increase in world coffee exports is bearish for prices after the International Coffee Organization (ICO) reported on December 15 that global Oct coffee exports rose +0.9% y/y to 9.53 million bags. Also, Brazil's Trade Ministry reported on December 1 that Brazil's Nov coffee exports (not roasted) rose +8.5% y/y to 235,000 MT. In addition, Honduras, Central America's biggest coffee-producing country, said its Nov coffee exports jumped +63% y/y to 110,413 bags.
In a bearish factor, the International Coffee Organization (ICO) projected on Dec 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 2023/24 coffee consumption will rise +2.2% y/y to 177 million bags, resulting in a 1 million bag coffee surplus.
The USDA’s Foreign Agriculture Service (FAS), in its biannual 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% decline 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. The USDA's FAS projects 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 acreage. The USDA's FAS also forecasts 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.
On 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 solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
