Arabica Coffee Falls On Abundant Supplies And Brazilian Real Weakness

December arabica coffee (KCZ22) on Thursday closed down -2.75 (-1.77%), and Jan ICE Robusta coffee (RMF23) closed up +26 (+1.45%).

Coffee prices Thursday settled mixed, with arabica sinking to a 16-month nearest-futures low.  Abundant U.S. coffee inventories are bearish for coffee prices.  The Green Coffee Association reported Tuesday that U.S. Oct green coffee inventories rose +5.8% y/y to 6,320,157 mln bags.

Losses in arabica accelerated Thursday after the Brazilian real (^USDBRL) tumbled to a 10-month low against the dollar.  The weaker real encourages export selling from Brazil’s coffee producers.

Robusta coffee Thursday recovered from a 15-month nearest-futures low and posted moderate gains on signs of tight supplies.  ICE robusta coffee inventories fell to a 4-year low Thursday of 8,743 bags.

Coffee prices have been on the defensive over the past six weeks.  Fund selling has hammered coffee futures on concern about increasing coffee supplies as more than 500,000 bags of coffee are pending assessment by the ICE Futures Exchange, up from 150,000 bags two weeks ago.  That is fueling speculation that they are old bags of coffee taken out of ICE stocks for regrading and re-certification before re-entering ICE warehouses as new coffee stocks.  ICE arabica coffee inventories climbed to an 8-week high Wednesday of 485,369 bags.

Robust coffee exports from Vietnam are bearish for robusta prices.  Vietnam’s General Department of Customs reported on Oct 7 that Vietnam exported 1.73 MMT of coffee in the 2021/22 season that ended Sep 30, a 4-year high.  Vietnam is the world’s biggest producer of robusta coffee beans.

In a bearish factor, Rabobank last Wednesday projected Brazil’s 2023/24 coffee crop would climb +8% y/y to 68.25 mln bags as recent rain is seen favoring the development of crops.  Rabobank also said a global coffee surplus could be seen in 2023/24 as consumption is expected to slow down from an economic recession and energy crisis.

Arabica coffee has underlying support from Monday’s report from Somar Meteorologia that showed Brazil’s Minas Gerais region received 20.6 mm of rain last week, or only 44% of the historical average.  Minas Gerais accounts for about 30% of Brazil’s arabica crop.  However, generally favorable weather has recently boosted Brazil’s longer-term coffee crop outlook.  World Weather recently said frequent rain and abundant sunshine had created a “pretty good environment” for Brazil’s 2023/24 coffee crop.

A large short position in coffee by funds could fuel some short-covering.  Last Friday’s weekly Commitment of Traders (COT) report showed that funds boosted their net-short arabica coffee positions by 3,777 to a 2-year high of 14,163 short positions in the week ended Nov 8.  Also, COT data showed that funds boosted their net-short robusta coffee positions by 3,484 to a 2-year high of 23,516 short positions in the week ended Nov 8.

Tight arabica coffee bean inventories are supportive for prices after ICE arabica coffee inventories on Oct 28 fell to a 23-year low of 384,795 bags.  However, ICE arabica coffee inventories rebounded moderately to an 8-week high Wednesday.

Smaller global coffee exports support coffee prices after the International Coffee Organization (ICO) reported last Monday that global coffee exports during Oct-Sep fell -0.4% y/y to 129 million bags.  Also, the Colombia Coffee Growers Federation reported on Nov 4 that Colombia’s Oct coffee exports fell -5% y/y to 942,000 bags.  Colombia is the world’s second-largest producer of arabica beans.  Also, Cecafe reported Thursday that Brazil’s Oct green coffee exports fell -2.9% y/y to 3.18 mln bags.

In a bullish factor, Brazil’s crop agency Conab Sep 20 cut its 2022 Brazil coffee production estimate to 50.4 mln bags from a May estimate of 53.4 mln bags as adverse weather curbed coffee yields.  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.

In a bearish factor, the USDA, in its bi-annual report released on Jun 23, projected that 2022/23 global coffee production would climb +4.7% y/y to 174.95 mln bags, primarily due to Brazil’s arabica crop entering the on-year of the biennial production cycle.  The USDA projects that 2022/23 global coffee ending stocks will climb +6.3% y/y to 34.704 mln bags.

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Source: Rich Asplund – Barchart