March arabica coffee (KCH24) this morning is down -5.20 (-2.73%), and Mar ICE robusta coffee (RMH24) is down -50 (-1.78%).
Coffee prices this morning are under pressure, with arabica falling to a 3-week low and robusta dropping to a 2-1/2 week low. An increase in global coffee supplies is weighing on prices after the International Coffee Organization (ICO) reported that global coffee exports in Nov rose +4.1% y/y to 10.61 million bags and Oct-Nov coffee exports are up +3.1% y/y at 20.25 million bags.
Also, a decline in the Brazilian real (^USDBRL) today to a 2-week low against the dollar is negative for coffee prices. The weaker real encourages export selling by Brazil's coffee producers.
Arabica coffee prices have support on concern that recent dry weather in Brazil will damage coffee crops. Somar Meteorologia on December 18 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.
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 251,224 bags. ICE-monitored robusta coffee inventories Wednesday were at 3,453 lots, just above the record low of 3,374 lots posted on August 31.
Tight robusta coffee supplies propelled nearest-futures robusta prices (RMF24) on December 21 to a record high. Last Friday, Vietnam's General Department of Customs reported that Vietnam's 2023 (Jan-Dec) coffee exports fell -9.6% y/y to 1.60 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 U.S. Climate Prediction Center on June 8 declared an El Nino weather event, which is likely to support 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 Brazil's coffee exports is bearish for prices after 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. Also, 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 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.
