July arabica coffee (KCN23) this morning is up +5.40 (+2.95%), and July ICE robusta coffee (RMN23) is up +50 (+2.06%).
Coffee prices this morning are moderately higher. Today's rally in the Brazilian real (^USDBRL) to a 4-week high is boosting coffee prices. The stronger real discourages export selling from Brazil's coffee producers.
Global coffee supplies have tightened after the International Coffee Organization (ICO) reported on May 4 that global 2022/23 coffee exports during Oct-Mar fell -6.4% y/y to 62.295 mln bags.
A bullish factor for arabica is the decline in ICE-monitored arabica coffee inventories seen over the past three months, with a 5-1/4 month low of 644,735 bags posted last Friday.
Reduced coffee supplies from Colombia are bullish for prices after the Colombia Coffee Growers Federation May 4 that Colombian Apr coffee exports fell -15% y/y to 719,000 bags. Colombia is the world's second-largest arabica bean producer.
Arabica has support after Cecafe last Thursday reported Brazil's Apr green coffee exports dropped -14% y/y to 2.39 mln bags. By contrast, Honduran Mar coffee exports rose +14% y/y to 1.097 million bags. Honduras is Central America's biggest exporter of arabica beans.
Robusta coffee has carryover support from last Tuesday when Vietnam's General Department of Vietnam Customs reported Vietnam's Apr coffee exports fell -22% m/m at 163,607 MT, and Jan-Apr coffee exports are down -5.5% y/y at 716,580 MT. Vietnam is the world's largest producer of robusta coffee beans.
Robusta coffee has support from concern that heavy rain will reduce coffee yields in Indonesia, the world's third-biggest robusta producer. In addition, global demand for robusta has increased as roasters and consumers seek cheaper coffee options to cope with high inflation.
A negative factor for coffee is drier conditions in Brazil's coffee fields that should accelerate the pace of the country's coffee harvest. Meteorologia reported last Monday that Brazil's Minas Gerais region received 0.4 mm of rain in the week ended May 7, or 6% of the historical average. Minas Gerais accounts for about 30% of Brazil's arabica crop.
A bearish factor for robusta is the increase in ICE-monitored robusta coffee inventories today to a 5-1/4 month high.
An excessive long position in robusta coffee futures could fuel long liquidation pressures after last Friday's weekly Commitment of Traders (COT) data showed that funds boosted their net-long positions of robusta coffee futures by 467 in the week ending May 9 to a 16-month high of 40,809 long positions.
Coffee prices also have support as the odds of an El Nino weather event increased, which could likely undercut global coffee production. Last Thursday, the U.S. Climate Prediction Center raised the likelihood of an El Nino weather pattern emerging between August and October to 94% from 74% a month ago. If that El Nino pattern occurs, it could bring heavy rains to Brazil and drought to India, negatively impacting coffee crop production.
Robusta has support on global supply concerns after coffee trader Volcafe forecasted the global 2023/24 robusta coffee market would see a record deficit of 5.6 mln bags. In addition, the Association of Indonesian Coffee Exporters and Industries said that Indonesia would see its 2023 coffee production fall -20% y/y to 9.6 mln bags due to damage from excessive rainfall across its growing regions.
The International Coffee Organization (ICO) projects the global 2022/23 coffee market deficit will widen to -7.3 mln bags from a -7.1 mln bag deficit in 2021/22. ICO projects that 2022/23 global coffee production will increase +1.7% y/y to 171.27 mln bags, and 2022/23 global coffee consumption will increase +1.7% y/y to 178.53 mln bags.
The USDA, in its bi-annual report released on December 23, cut its global 2022/23 coffee production estimate by -1.3% to 172.8 mln bags from a June estimate of 175.0 mln bags. In addition, the USDA cut its 2022/23 global coffee ending stocks estimate by -1.7% to 34.1 mln bags from a June estimate of 34.7 mln bags. Meanwhile, the USDA's Foreign Agriculture Service (FAS) on November 22 cut its Brazil 2022/23 coffee production forecast by -2.6% to 62.6 mln bags from a prior estimate of 64.3 mln bags. This year was supposed to be the higher-yielding year of Brazil's biennial coffee crop, but coffee output this year was slashed by drought.
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.
