Coffee Slumps On Dollar Strength And Improved Brazil Coffee Crop Outlook

December arabica coffee (KCZ22) on Thursday closed down -9.95 (-5.46%), and Jan ICE Robusta coffee (RMF23) closed down -40 (-2.13%).

December arabica coffee (KCZ22)
December arabica coffee (KCZ22)

Coffee prices Thursday closed sharply lower.  A rally in the dollar Thursday to a 1-1/2 week high weighed on most commodities priced in dollars.  Coffee prices have also been on the defensive recently, with arabica falling to a 15-month nearest-futures low last Friday on an improved coffee crop outlook in Brazil.  World Weather said frequent rain and abundant sunshine had created a “pretty good environment” for Brazil’s 2023/24 coffee crop.

Abundant U.S. coffee inventories are bearish for coffee prices.  The Green Coffee Association on Oct 17 reported that U.S. Sep green coffee inventories rose +5.2% y/y to 6,378,478 mln bags.

Robust coffee exports 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.

Arabica coffee has support from Somar Meteorologia’s report on Monday that Brazil’s Minas Gerais region had 28.9 mm of rain last week, or only 79% of the historical average.  Minas Gerais accounts for about 30% of Brazil’s arabica crop.

Tight arabica coffee bean inventories are bullish for prices after ICE arabica coffee inventories last Friday fell to a 23-year low of 384,795 bags.

Smaller global coffee exports support coffee prices after the International Coffee Organization (ICO) reported Monday that global coffee exports during Oct-Sep fell -0.4% y/y to 129 million bags.  Also, the Colombia Coffee Growers Federation reported Oct 10 that Colombia’s Jan-Sep coffee exports fell -6.2% y/y to 8.58 mln bags.  Colombia is the world’s second-largest producer of arabica beans.  However, Cecafe reported Oct 11 that Brazil’s Sep green coffee exports rose +7.1% y/y to 3.1 mln bags.

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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Source: Rich Asplund (Barchart)