December arabica coffee (KCZ22) on Monday closed up +6.20 (+4.10%), and Jan ICE robusta coffee (RMF23) closed up +1 (+0.06%).
Arabica coffee prices early Monday edged to a new 16-month nearest-futures low but then rallied sharply on short-covering, sparked in part by weather news. Somar Meteorologia reported Monday 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.
Coffee prices on Monday shook off bearish factors that included a +0.8% rally in the dollar and concern about weaker demand caused by China’s Covid spike.
Large hedge-fund short positions have raised the possibility of short-covering pressure in robusta futures. ICE Futures Europe reported last Friday that funds in the week ended Nov 15 raised their net-short position by 5,025 to a 2-year high of 28,541 contracts.
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.
Robusta coffee prices have underlying support from tight inventories. ICE robusta coffee inventories fell to a 4-year low of 8,705 bags on Monday. ICE arabica coffee inventories fell to a 23-year low of 382,695 bags on Nov 3, but those inventories then rebounded by +34% to a 2-month high of 513,189 by last Friday. 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 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 on June 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.
Rich Asplund – Barchart