Arabica Falls on Optimism in Brazil’s Coffee Crop

December arabica coffee (KCZ22) on Monday closed down -1.15 (-0.58%), and Nov ICE Robusta coffee (RMX22) closed up +3 (+0.15%).  

Coffee prices Monday settled mixed, with arabica dropping to a 3-month nearest-futures low.  Coffee prices remain under pressure as beneficial weather in Brazil has aided the flowering of coffee trees and bolstered the outlook for next year's coffee crop.  Arabica recovered from its worst levels Monday, and robusta posted modest gains after the dollar index (DXY00) fell to a 1-week low.

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

Robust coffee supplies from Vietnam are bearish for prices.  Vietnam's General Department of Customs reported October 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.

A supportive factor for coffee prices is drier-than-normal conditions in Brazil's coffee-growing areas.  Somar Meteorologia reported today that Minas Gerais had 13 mm of rain last week, or only 41% of the historical average.  Minas Gerais accounts for about 30% of Brazil's arabica crop.  

Coffee harvest pressures in Brazil are a bearish factor for coffee prices.  Cooxupe cooperative, one of Brazil's biggest coffee producers, reported Sep 21 that Brazil's coffee harvest was 99.4% completed as of Sep 16.  Coffee producer sales typically increase during harvest time to make space for storing their newly-picked crops.  

Abundant U.S. coffee supplies are bearish for coffee prices.  The Green Coffee Association on Sep 15 reported that U.S. Aug green coffee inventories rose +3.6% m/m and +5.2% y/y to a 2-year high of 6,450,086 mln bags.  

Tight ICE inventories are supportive for coffee prices after ICE arabica coffee inventories last Friday fell to a 23-year low of 400,439 bags.

Signs of smaller global coffee supplies support prices after the International Coffee Organization (ICO) reported last Tuesday 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 last Monday 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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