Coffee Gains on Dollar Weakness and Smaller Brazil Coffee Exports

December arabica coffee (KCZ22) on Thursday closed up +5.85 (+3.54%), and Jan ICE Robusta coffee (RMF23) closed up +8 (+0.44%).

Coffee prices Thursday recovered from early losses, with arabica coffee moving sharply higher.  Coffee prices rallied on Thursday's -1.9% plunge in the dollar index to a 2-month low.  Reduced coffee exports from Brazil also supported coffee prices after Cecafe reported Brazil's Oct green coffee exports fell -2.9% y/y to 3.18 mln bags.

Coffee prices Thursday initially moved lower, with arabica and robusta falling to 15-month nearest-futures lows.  Rabobank Wednesday projected Brazil's 2023/24 coffee crop would climb +8% y/y to 68.25 mln bags as recent rain is seen favoring the development of crops.  Rabobank also said a global coffee surplus could be seen in 2023/24 as consumption is expected to slow down from an economic recession and energy crisis.

Arabica coffee has underlying support from Somar Meteorologia's Monday report that Brazil's Minas Gerais region had 28.4 mm of rain last week, or only 63% of the historical average.  Minas Gerais accounts for about 30% of Brazil's arabica crop.

Due to recent beneficial weather, arabica coffee prices are under pressure on Brazil's improved, longer-term coffee crop outlook.  World Weather recently said frequent rain and abundant sunshine had created a "pretty good environment" for Brazil's 2023/24 coffee crop.  

A large short position in robusta coffee by funds could fuel some short-covering.  Last Friday's weekly Commitment of Traders (COT) report showed funds boosted their net-short robusta coffee positions by 12,826 to a 2-year high of 20,032 short positions in the week ended Nov 1.

Tight arabica coffee bean inventories are bullish for prices after ICE arabica coffee inventories on Oct 28 fell to a 23-year low of 384,795 bags.  However, supplies have recovered modesty as ICE arabica coffee inventories rose to a 6-week high Wednesday.

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.

Smaller global coffee exports support coffee prices after the International Coffee Organization (ICO) reported last Monday that global coffee exports during Oct-Sep fell -0.4% y/y to 129 million bags.  Also, the Colombia Coffee Growers Federation reported last Friday that Colombia's Oct coffee exports fell -5% y/y to 942,000 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 Jun 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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