May arabica coffee (KCK20) on Tuesday closed down -4.00 (-3.52%). May ICE Robusta coffee (DFK0) closed down -37 (-3.25%).
Coffee prices on Tuesday sold off with arabica coffee at a 1-month low and robusta coffee falling to an all-time low (data from 2008). Fund selling erupted in coffee futures on the outlook for a global coffee surplus after Sucden Financial on Tuesday projected a 2020/21 global coffee surplus of 2.9 mln bags, recovering sharply from a projected global 2019/20 coffee deficit of -5.5 mln bags.
In a bearish technical signal, the May coffee futures contract on Tuesday closed below its 200-day moving average for the first time in a month.
Dry weather in Brazil is beneficial for the country’s coffee harvest and also weighed on coffee prices. Somar Meteorologia on Monday said that rainfall in Minas Gerais, Brazil’s largest arabica coffee-growing region, was 10.4 mm over the past week, or 60% of the historical average. Somar Meteorologia last Friday forecasted dry conditions for the last 10 days of April in Minas Gerais, which would help speed up the pace of the area’s coffee harvest.
Persistent weakness in the Brazilian real is a bearish factor for arabica coffee. The real on Monday fell -1.56% to a 2-week low and was little changed Tuesday, trading just above early-April’s record low of 5.3528 reals/USD. A weaker real encourages export selling by Brazil’s coffee producers. Brazil’s markets were closed Tuesday for the Tiradentes Day holiday.
Coffee prices are still under pressure on a weak demand outlook with large swaths of the world under stay-at-home orders and with the closure of many restaurants, cafes, and bars around the world. The International Coffee Organization (ICO) on Apr 3 said that global coffee consumption this year could stagnate or even decline compared with the pre-pandemic growth forecast of 2%-3%.
Ample supplies from Vietnam, the world’s largest robusta coffee producer, are undercutting robusta coffee prices. Vietnam’s General Statistics Office reported last Tuesday that Vietnam’s Jan-Mar coffee exports rose +0.3% y/y to 489,260 MT.
A supportive factor for coffee was last Thursday’s report from the Green Coffee Association that U.S. Mar green coffee inventories fell -4.6% m/m and -1.4% y/y to 6.024 mln bags.
Dwindling U.S. coffee inventories are bullish for coffee prices after ICE-monitored coffee inventories last Wednesday fell to a 2-1/2 year low of 1.866 mln bags.
Coffee prices still have support on concern about coffee supply disruptions in South America. Coffee-trader Volcafe recently told clients that the coronavirus pandemic is causing logistical holdups that will become “more widespread” in major coffee-producing countries, which may delay coffee shipments to ports and other transport operations. Brazil’s Sao Paulo state began a 15-day quarantine Mar 24, and Colombia put its entire population on a 3-week lockdown. Also, Rabobank last Monday said the expected peak of the coronavirus pandemic in Brazil is expected to coincide with Brazil’s coffee harvest, which may be problematic since most of the coffee harvest is done manually and many local workers and laborers may stay away or be quarantined because of the virus.
Data from the National Coffee Institute (ICAFE) last Tuesday showed Costa Rica Mar coffee exports rose +9.4% y/y to 164,101 bags.