July arabica coffee (KCN23) on Friday closed up +5.35 (+2.87%), and July ICE robusta coffee (RMN23) closed up +48 (+1.89%).
Coffee prices Friday posted moderate gains, with arabica climbing to a 3-week high and robusta rallying to a 12-year high. Arabica has carryover support from Thursday when Conab cut its Brazil 2023 coffee crop estimate to 54.7 mln bags from 54.9 mln bags forecast in Jan. Another bullish factor for arabica is the decline in ICE-monitored arabica coffee inventories seen over the past three months. On Thursday, ICE arabica coffee inventories fell to a 5-1/2 month low of 629,810 bags.
Tightness in robusta coffee supplies has sparked fund buying of robusta coffee futures. Vietnam’s General Department of Vietnam Customs reported last Tuesday that Vietnam’s Apr coffee exports fell -22% m/m at 163,607 MT, and Jan-Apr coffee exports are down -5.5% y/y at 716,580 MT. Vietnam is the world’s largest producer of robusta coffee beans.
Robusta coffee also has support from concern that heavy rain will reduce coffee yields in Indonesia, the world’s third-biggest robusta producer. In addition, global demand for robusta has increased as roasters and consumers seek cheaper coffee options to cope with high inflation.
A bearish factor for robusta coffee is an increase in ICE-monitored robusta coffee inventories Friday to a 5-1/2 month high.
Global coffee supplies have tightened after the International Coffee Organization (ICO) reported on May 4 that global 2022/23 coffee exports during Oct-Mar fell -6.4% y/y to 62.295 mln bags.
Reduced coffee supplies from Colombia are bullish for arabica prices after the Colombia Coffee Growers Federation May 4 that Colombian Apr coffee exports fell -15% y/y to 719,000 bags. Colombia is the world’s second-largest arabica bean producer.
Arabica has support after Cecafe last Thursday reported Brazil’s Apr green coffee exports dropped -14% y/y to 2.39 mln bags. By contrast, Honduran Mar coffee exports rose +14% y/y to 1.097 million bags. Honduras is Central America’s biggest exporter of arabica beans.
A negative factor for coffee is drier conditions in Brazil’s coffee fields that should accelerate the pace of the country’s coffee harvest. Meteorologia reported last Monday that Brazil’s Minas Gerais region received 0.4 mm of rain in the week ended May 7, or 6% of the historical average. Minas Gerais accounts for about 30% of Brazil’s arabica crop.
Coffee prices also have support as the odds of an El Nino weather event increased, which could undercut global coffee production. Last Thursday, the U.S. Climate Prediction Center raised the likelihood of an El Nino weather pattern emerging between August and October to 94% from 74% a month ago. If that El Nino pattern occurs, it could bring heavy rains to Brazil and drought to India, negatively impacting coffee crop production.
Robusta has support on global supply concerns after coffee trader Volcafe forecasted the global 2023/24 robusta coffee market would see a record deficit of 5.6 mln bags. In addition, the Association of Indonesian Coffee Exporters and Industries said that Indonesia would see its 2023 coffee production fall -20% y/y to 9.6 mln bags due to damage from excessive rainfall across its growing regions.
The International Coffee Organization (ICO) projects the global 2022/23 coffee market deficit will widen to -7.3 mln bags from a -7.1 mln bag deficit in 2021/22. ICO projects that 2022/23 global coffee production will increase +1.7% y/y to 171.27 mln bags, and 2022/23 global coffee consumption will increase +1.7% y/y to 178.53 mln bags.
The USDA, in its bi-annual report released on December 23, cut its global 2022/23 coffee production estimate by -1.3% to 172.8 mln bags from a June estimate of 175.0 mln bags. In addition, the USDA cut its 2022/23 global coffee ending stocks estimate by -1.7% to 34.1 mln bags from a June estimate of 34.7 mln bags. Meanwhile, the USDA’s Foreign Agriculture Service (FAS) on November 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. 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.