Coffee Moderately Lower As Prices Consolidate Recent Losses

March arabica coffee (KCH23) this morning is down -2.05 (-1.24%), and Jan ICE robusta coffee (RMF23) is down -22 (-1.20%).

Coffee prices this morning are moderately lower as they consolidate recent sharp losses.  Arabica on Monday posted a new 16-month nearest-futures low on concern about weaker demand caused by China’s Covid spike.  Also, ICE-monitored arabica coffee inventories have steadily increased over the past two weeks to a 2-month high Tuesday.

A faster pace of the coffee harvest in Vietnam, the world’s biggest robusta coffee producer, is weighing on robusta prices today as the coffee harvest in Vietnam was 38% completed as of Nov 20, above the 5-year average of 30%.

There is some optimism about Brazil’s longer-term coffee crop outlook after World Weather recently said frequent rain and abundant sunshine had created a “pretty good environment” for Brazil’s 2023/24 coffee crop.  However, Cooxupe, Brazil’s biggest arabica coffee cooperative, said that next year’s harvest is likely to be as weak as this year’s harvest due to the slow development of Brazil’s new coffee crop.

A supportive factor for coffee was Tuesday’s action from the USDA’s Foreign Agriculture Service (FAS) to 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.  Also, the FAS cut its Colombia 2022/23 coffee production forecast by -3.1% to 12.6 mln bags from a prior estimate of 13 mln bags.

Coffee prices also have carry-over support from Monday when Somar Meteorologia reported that Brazil’s Minas Gerais region received 35.9 mm of rain last week, or only 72% of the historical average.  Minas Gerais accounts for about 30% of Brazil’s arabica crop.

Large hedge-fund short positions have raised the possibility of short-covering pressure in coffee futures.  Last Friday’s weekly Commitment of Traders report (COT) showed that funds in the week ended Nov 15 raised their net-short arabica coffee positions by 4,623 to a 2-year high of 18,786 contracts.   Also, the COT report showed that funds in the week ended Nov 15 raised their net-short robusta coffee positions by 5,025 to a 2-year high of 28,541 contracts.

Robusta coffee prices have underlying support from tight inventories.  ICE robusta coffee inventories fell to a 4-year low of 8,693 bags on Wednesday.  ICE arabica coffee inventories fell to a 23-year low of 382,695 bags on Nov 3, but those inventories then rebounded by more than +38% to a 2-month high of 530,105 bags on Tuesday.  In a bearish factor, the Green Coffee Association reported last Tuesday that U.S. Oct green coffee inventories rose +5.8% y/y to 6,320,157 mln bags.

Smaller global coffee exports are supportive of coffee prices after the International Coffee Organization (ICO) reported on Nov 7 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 last Thursday that Brazil’s Oct green coffee exports fell -2.9% y/y to 3.18 mln bags.  However, 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 bullish factor, 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.

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.

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Rich Asplund – Barchart