Coffee Prices Sink On Rising Global Production And Demand Concerns

December arabica coffee (KCZ22) on Wednesday closed down -6.05 (-3.26%), and Jan ICE Robusta coffee (RMF23) closed down -73 (-3.75%).

Coffee Prices Sink On Rising Global Production And Demand Concerns

Coffee prices Wednesday sold off sharply for a second day, with arabica falling to a 14-month nearest-futures low and robusta dropping to a 3-1/4 month nearest-futures low.  Coffee prices are retreating on demand concerns due to soaring global inflation, rising interest rates, and recession fears.

Coffee prices are also on the defensive as global coffee supply prospects improve.  World Weather said frequent rain and plentiful sunshine in Brazil are creating a “pretty good environment” for Brazil’s coffee production in the 2023/24 crop year.  Beneficial weather in Brazil has aided the flowering of coffee trees and bolstered the outlook for next year’s coffee crop.

Robust coffee supplies from Vietnam are bearish for robusta prices.  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.

Abundant U.S. coffee supplies are bearish for coffee prices.  The Green Coffee Association last Monday reported that U.S. Sep green coffee inventories rose +5.2% y/y to 6,378,478 mln bags.

Larger coffee exports from Brazil are bearish for prices after Cecafe reported Oct 11 that Brazil Sep green coffee exports rose +7.1% y/y to 3.1 mln bags.

A supportive factor for coffee was last Friday’s action by Safras & Mercado to cut its Brazil 2022/23 coffee production estimate to 57.3 mln bags from a previous estimate of 58.2 mln bags.

Tight arabica coffee bean supplies are bullish for prices after ICE arabica coffee inventories Wednesday fell to a 23-year low of 386,465 bags.

A supportive factor for coffee prices is drier-than-normal conditions in Brazil’s coffee-growing areas.  Somar Meteorologia reported Monday that Minas Gerais had 28.5 mm of rain last week, or only 86% of the historical average.  Minas Gerais accounts for about 30% of Brazil’s arabica crop.

Signs of smaller global coffee supplies support prices after the International Coffee Organization (ICO) reported Oct 11 that global Aug coffee exports fell -1.9% y/y to 9.9 mln bags and that global coffee exports from Oct-Aug are down -0.3% y/y to 118.86 mln bags.

Arabica also has support from reduced coffee exports from Colombia.  The Colombia Coffee Growers Federation reported Oct 10 that Colombia’s Sep coffee exports dropped -25% y/y to 820,000 bags.  Also, Colombia’s Jan-Sep coffee exports are down -6.2% y/y at 8.58 mln bags.  Colombia is the world’s second-largest producer of arabica beans.

In a bullish factor, Brazil’s crop agency Conab 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.

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Rich Asplund (Barchart)

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