Dec arabica coffee (KCZ23) on Monday closed down -0.40 (-0.26%), and Nov ICE robusta coffee (RMX23) is not trading today, with UK markets closed for a holiday.
Coffee prices Monday gave up an early advance and posted modest losses. Coffee prices have been under pressure over the past three weeks, with arabica falling to a 7-1/2 month low on August 18, as favorable weather in Brazil, the world's largest arabica coffee producer, has accelerated the country's coffee harvest, boosting supplies and undercutting prices. Cooxupe, Brazil's coffee export cooperative, reported last Wednesday that Brazil's coffee harvest was 87.3% completed as of August 18, ahead of the 85.5% completed at the same time last year.
Losses in arabica Monday were limited on concerns that wetter-than-normal weather in Brazil will delay the country's coffee harvest completion. Somar Meteorologia reported Monday that Brazil's Minas Gerais region received 7.4 mm of rain in the past week, or 190% of the historical average. Minas Gerais accounts for about 30% of Brazil's arabica crop.
An excessive short position by funds in arabica coffee could fuel any short covering rally in arabica futures. Last Friday's weekly Commitment of Traders (COT) data showed funds boosted their net-short positions in arabica coffee by 7,704 in the week ended August 22 to 34,986, the biggest short position in 7 months.
A bullish factor for robusta coffee is shrinking supplies as ICE-monitored robusta coffee inventories Friday fell to a record low of 3,408 lots (data history back to 2016).
An increase in Brazil's coffee exports is negative for prices after Cecafe reported on August 10 that Brazil's July green coffee exports rose +22% y/y to 2.7 mln bags, with robusta July exports more than tripling to 505,153 bags.
On the bearish side, Honduras, the largest coffee-producing country in Central America, reported on July 31 that its coffee exports rose +63% y/y in July to 828,499 bags.
Smaller global coffee supplies are bullish for prices after the International Coffee Organization (ICO) on August 3 reported global coffee exports from Oct-Jun were down -6.2% y/y at 93.44 mln bags. Also, on Monday, ICE-monitored arabica coffee inventories dropped to a 9-1/4 month low of 512,433 bags.
Tight global robusta coffee supplies are bullish for prices. Vietnam's General Department of Customs reported on August 9 that Vietnam coffee exports in the first seven months of this year (Jan-Jul) fell -3.4% y/y to 1.1 MMT. Also, Vietnam's coffee harvest this year is expected to drop more than -7% to 1.67 MMT, the smallest crop in four years, according to a Bloomberg survey of exporters and traders released on May 3. Vietnam is the world's largest producer of robusta coffee beans. However, Cecafe reported on July 20 that Brazil's June robusta exports rose +60% y/y to 230,653 bags.
A bullish factor for arabica was the Colombian Coffee Growers Federation report on August 9 that Colombian July coffee exports fell -17% y/y to 846,000 bags. Colombia is the world's second-largest producer of arabica coffee beans.
Coffee prices saw support after Rabobank on June 27 raised its 2022/23 coffee deficit forecast to -6.4 million bags due to a 3.6 million bag cut in its 2022/23 coffee production estimate to 164 million bags. The lower production estimate was caused mainly by lower production in Brazil and Colombia. However, Rabobank expects a neutral coffee balance in 2023/24, with a surplus in arabica and a deficit in robusta. Coffee trader Volcafe recently forecasted the global 2023/24 robusta coffee market would see a record deficit of 5.6 million bags.
The USDA Foreign Agricultural Service forecasted in its June biannual report, released 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% decline 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 edge higher by +0.8% to 31.8 million bags from 31.6 bags in 2022-23.
The U.S. Climate Prediction Center on June 8 declared an El Nino weather event, which is likely to be supportive of coffee prices. The U.S. Climate Prediction Center said sea surface temperatures across the equatorial Pacific Ocean had risen 0.5 degrees Celsius above normal, and wind patterns have changed to the point where El Nino criteria have been met. 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.
Illustrating a tight coffee supply picture in 2022/23, the ICO said the global 2022/23 coffee market deficit widened to -7.3 mln bags from a -7.1 mln bag deficit in 2021/22. ICO reported that 2022/23 global coffee production increased +1.7% y/y to 171.27 mln bags, but that 2022/23 global coffee consumption increased +1.7% y/y to a larger 178.53 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.
