Coffee Prices See Support From Weaker Dollar And Technical Buying

March arabica coffee (KCH23) on Friday closed up +3.10 (+1.84%), and Jan ICE robusta coffee (RMF23) closed up 2 (+0.10%).

Coffee prices Friday saw support today from a slightly weaker dollar (DXY00) and from technical buying as arabica coffee rallied to a 1-week high and may be close to challenging the 1-3/4 month high posted on Dec 1.

Coffee prices found support earlier this week when the USDA, in its bi-annual report released on Wednesday, 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.

A bullish factor for arabica coffee was slightly drier-than-normal conditions in Brazil last week.  Somar Meteorologia reported Monday that Brazil’s Minas Gerais region received 53.6 mm of rain last week, or 94% of the historical average.  Minas Gerais accounts for about 30% of Brazil’s arabica crop.

Robusta has support from ever-tighter coffee inventories as ICE-monitored robusta coffee inventories Monday sank to a 4-1/2 year low of 6,470 lots and were just above that level at 6,508 lots on Friday.

In a bearish factor, ICE arabica coffee inventories have risen steadily since falling to a 23-year low of 382,695 bags on Nov 3 and posted a  5-1/2 month high of 788,275 bags on Thursday.  Inventories on Friday were just below that level at 787,005 bags.

On the negative side, Conab last Thursday raised its 2022 Brazil coffee production estimate to 50.9 mln bags from a 50.4 mln bag estimate in Sep, up +6.7% y/y.

A bearish factor for robusta is ample coffee supplies from Vietnam.  The General Statistics Office of Vietnam reported on Dec 8 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.

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.  Also, 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.  Meanwhile, Cecafe reported on Nov 17 that Brazil’s Oct green coffee exports fell -2.9% y/y to 3.18 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.  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.

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Rich Asplund – Barchart

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