May arabica coffee (KCK24) this morning is up +1.00 (+0.42%), and May ICE robusta coffee (RMK24) is up +17 (+0.42%).
Coffee prices this morning are moderately higher but well below Thursday's significant highs. Dollar weakness today has prompted short covering in coffee futures.
On Thursday, arabica coffee posted a new 2-year high, and robusta coffee posted a new all-time high. Coffee prices have surged over the past month due to crop concerns in Brazil and Vietnam. Somar Meteorologia reported Monday that Brazil's Minas Gerais region received 15.8 mm of rainfall in the past week, or 74% of the historical average. Minas Gerais accounts for about 30% of Brazil's arabica crop. Robusta coffee is surging to new record highs on fears that excessive dryness 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 drop -20% y/y to 1.336 MM. In addition, Marex Group Plc forecasts a global 2024/25 robusta coffee deficit of -2.7 million bags due to reduced output in Vietnam.
Fund buying has supported this month's surge 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 liquidation pressures in a price downturn.
There has recently been some bearish export news. Cecafe reported last Wednesday that Brazil's Mar green coffee exports jumped +41% y/y to 3.9 million bags. Brazil is the world's largest producer of arabica coffee beans. Also, Brazil's exporter group Comexim, on February 1, raised its Brazil 2023/24 coffee export estimate to 44.9 million bags from a previous estimate of 41.5 million bags. The International Coffee Association (ICO) last Monday reported that global coffee exports in Feb rose +6.8% y/y to 11.33 million bags, and total 2023/24 global coffee exports from Oct-Feb rose +11.1% y/y to 56.2 million bags. In a bearish factor for robusta, Vietnam's General Department of Customs reported last Tuesday that Vietnam's Mar coffee exports rose +17.7% m/m to 188,972 MT. Also, Vietnam's Q1 coffee exports rose +5.9% y/y to 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 4-1/4 month high Thursday of 3,544 lots. Also, ICE-monitored arabica coffee inventories fell to a 24-year low of 224,066 bags on November 30, but they recovered to a 10-3/4 month high last Friday of 639,650 bags.
This past year's El Nino weather event is bullish for coffee prices. An El Nino pattern typically brings heavy rain to Brazil and drought to India, negatively impacting coffee crop production. The El Nino event has brought drought to Vietnam's coffee areas this year, 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 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.
