Coffee Pushes Higher On Strength In Brazilian Real And Tight Robusta Inventories

March arabica coffee (KCH23) on Tuesday closed up +3.50 (+2.13%), and Jan ICE robusta coffee (RMF23) closed up +11 (+0.57%).

Coffee prices Tuesday rose moderately, with robusta climbing to an 8-week high.  Strength in the Brazilian real (^USDBRL) lifted arabica prices as the real rose +1.87% Tuesday to a 2-week high.  A stronger real discourages export selling from Brazil’s coffee producers.

Robusta rallied Tuesday on ever-tighter coffee inventories as ICE-monitored robusta coffee inventories Monday sank to a nearly 4-1/2 year low of 6,470 lots.

A supportive factor for arabica coffee was slightly drier-than-normal conditions in Brazil last week.  Somar Meteorologia reported today 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.

A bearish factor for coffee was last Friday’s report from the Green Coffee Association that showed U.S. Nov green coffee inventories rose +1.1% m/m and +9.4% y/y to 6.39 mln bags.  Also, ICE arabica coffee inventories jumped to a 5-1/4 month high of 775,656 bags Tuesday from the 23-year low of 382,695 bags posted on Nov 3.

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 coffee prices was last Tuesday’s report from Cecafe that showed Brazil’s Nov green coffee exports jumped +19.2% y/y to 3.39 mln bags.

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.

In a bearish factor, the Green Coffee Association reported on Nov 15 that U.S. Oct green coffee inventories rose +5.8% y/y to 6,320,157 mln bags.

In a bearish factor, the USDA, in its bi-annual report released in June, 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

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