Arabica Coffee Higher On Speculation Of Lower Brazil Coffee Output

March arabica coffee (KCH23) on Tuesday closed up +0.85 (+0.51%), and Jan ICE robusta coffee (RMF23) closed down -11 (-0.58%).

Coffee prices Tuesday settled mixed, with arabica climbing to a 1-1/2 week high.  Arabica prices Tuesday extended Monday’s gains on speculation that Conab, Brazil’s crop forecasting agency, will cut its Brazil coffee production estimates on Thursday because of bad weather.

Arabica prices Tuesday fell back from their best levels, and robusta turned lower, on news of larger coffee exports from Brazil.  Cecafe reported that Brazil’s Nov green coffee exports jumped +19.2% y/y to 3.39 mln bags.

Arabica coffee Monday initially fell to a 3-week low as dry conditions eased in Brazil.  Somar Meteorologia reported Monday that Brazil’s Minas Gerais region received 81.1 mm of rain last week, or 124% of the historical average.  Minas Gerais accounts for about 30% of Brazil’s arabica crop.

A large short position by commodity funds of arabica coffee futures could spark short covering pressure.  Last Friday’s weekly Commitment of Trades (COT) report showed funds boosted their net-short arabica coffee positions by +3,359 in the week ending Dec 6 to a 2-year high of 22,491 positions.

A negative factor for arabica coffee is a rebound in inventories.  ICE arabica coffee inventories jumped to a 4-1/2 month high of 705,572 bags Monday from the 23-year low of 382,695 bags posted on Nov 3.

A bearish factor for robusta is ample coffee supplies from Vietnam.  The General Statistics Office of Vietnam reported last Thursday that Vietnam’s Jan-Nov coffee exports were up +13.4% y/y at 1.58 MMT.  Vietnam is the world’s biggest producer of robusta coffee beans.

Robusta coffee has support on ever-tighter coffee inventories on news that ICE-monitored robusta coffee inventories dropped to a 4-1/4 year low Tuesday of 7,448 bags.

The International Coffee Organization (ICO) reported on Dec 2 that global coffee exports in Oct fell -1.9% y/y to 9.87 mln bags.

In a bullish factor, the USDA’s Foreign Agriculture Service (FAS) on Nov 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.  Meanwhile, Brazil’s crop agency Conab on 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.

Smaller global coffee exports support coffee prices after the Colombia Coffee Growers Federation last Monday reported that Colombia’s Nov coffee exports fell -25% y/y to 854,000 bags.  Colombia is the world’s second-largest producer of arabica beans.  Also, Cecafe reported on Nov 17 that Brazil’s Oct green coffee exports fell -2.9% y/y to 3.18 mln bags.

In a bearish factor, the Green Coffee Association reported on Nov 15 that U.S. Oct green coffee inventories rose +5.8% y/y to 6,320,157 mln bags.

In a bearish factor, the USDA, in its bi-annual report released in June, 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.

Rich Asplund – Barchart

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