Fund Short Covering Lifts Coffee Prices

March arabica coffee (KCH23) this morning is up +0.90 (+0.60%), and Mar ICE robusta coffee (RMH23) is up +35 (+1.86%).

Coffee prices this morning are moving higher for a second day, with robusta climbing to a 3-week high.  Early weakness in the dollar Friday sparked fund short covering in coffee futures after the dollar index (DXY00) dipped to a 7-1/4 month low.  However, coffee prices fell back from their best levels Friday after the dollar recovered from early losses and moved slightly higher.

On Wednesday, arabica plunged to a 20-month nearest-futures low, and robusta fell to a 1-week low, as an improving global coffee supply outlook has hammered prices.  Coffee importer Wolthers Douque on Wednesday projected that Brazil's 2022/23 coffee crop would increase by +16% y/y to 65 mln bags due to improved weather conditions.

Abundant coffee supplies are undercutting coffee prices.  ICE arabica coffee inventories have risen steadily since falling to a 23-year low of 382,695 bags on Nov 3 and posted a 6-1/4 month high of 850,401 bags on Wednesday.

Increased coffee exports from Vietnam, the largest robusta producer, are weighing on robusta prices after the General Statistics Office of Vietnam reported Monday that Vietnam's Jan-Dec coffee exports were seen up +13.8% y/y at 1.8 MMT.

An easing of dry conditions in Brazil may lead to higher coffee yields and is bearish for prices.  Somar Meteorologia reported last Monday that Brazil's Minas Gerais region received 115.4 mm of rain last week, or 193% of the historical average.  Minas Gerais accounts for about 30% of Brazil's arabica crop.

On the bullish side for coffee prices was last Wednesday's report from the Colombia Coffee Growers Federation that showed Colombia's 2022 coffee exports fell -8% y/y to 11.1 mln bags.  Colombia is the world's second-biggest producer of arabica coffee beans.

Robusta coffee has support on signs of tighter supplies after ICE-monitored robusta coffee inventories last Thursday fell to a 4-1/2 year low of 6,397 lots.

On the bearish side, Conab on Dec 15 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.  Also, U.S. green coffee inventories are plentiful after the Green Coffee Association on Dec 15 reported that U.S. Nov green coffee inventories rose +1.1% m/m and +9.4% y/y to 6.39 mln bags.

The USDA, in its bi-annual report released on Dec 23, cut its global 2022/23 coffee production estimate by -1.3% to 172.8 mln bags from a June estimate of 175.0 mln bags.  In addition, the USDA cut its 2022/23 global coffee ending stocks estimate by -1.7% to 34.1 mln bags from a June estimate of 34.7 mln bags.  

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,  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.

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