Coffee Prices Retreat on Dollar Strength and Reduced Supply Concerns

May arabica coffee (KCK23) this morning is down -3.00 (-1.67%), and May ICE robusta coffee (RMK23) is down -26 (-1.23%).

Coffee prices this morning are moderately lower, with robusta posting a 3-week low.  A stronger dollar (DXY00) today is bearish for most commodity prices, including coffee.  A rebound in ICE inventories also weighs on robusta prices after ICE robusta inventories last Wednesday rose to a 3-month high at 7,426 lots.

Another bearish factor for coffee was last Friday's action by Safras & Mercado to raise its Brazil 2022/23 coffee production estimate to 58.9 mln bags from a previous estimate of 57.3 mln bags.

Signs of robust coffee exports from Honduras, Central America's biggest exporter of arabica beans, are bearish for coffee prices.  Last Thursday, the Honduran Coffee Institute reported that Honduran Feb coffee exports rose +32% y/y to 863,901 bags.

Arabica prices have support from last Friday when the National Federation of Coffee Growers said coffee output in Colombia, the world's second-largest producer of arabica coffee, will drop -4.8% y/y to 5 mln bags in the first half of 2023 as excessive rain and cloudy days hurt yields.  

Arabica also has support from last Friday's projection from the International Coffee Organization (ICO) that the global 2022/23 coffee market will be in deficit for a second year following the 4 mln bag to 5 mn bag deficit in 2021/22 due to arabica crop woes.  

Last Thursday’s report from Cecafe was a bullish factor for coffee prices as it showed Brazil's Feb green coffee exports dropped -35.8% y/y to 2.11 mln bags.  

Increased flooding concerns in Brazil's coffee fields are bullish for coffee prices.  The overly wet conditions may not allow farmers in Minas Gerais, Brazil's largest arabica growing region, back into coffee fields to apply fertilizers and pesticides.  Somar Meteorologia reported Monday that Brazil's Minas Gerais region received 63 mm of rain in the week ended March 12, or 157% of the historical average.  Minas Gerais accounts for about 30% of Brazil's arabica crop.

Tighter arabica coffee inventories are bullish for prices after ICE arabica coffee inventories last Tuesday fell to a 2-1/2 month low of 763,700 bags.  Also, smaller coffee supplies from Colombia, the world's second-largest producer of arabica coffee beans, are bullish for prices after the Colombia Coffee Growers Federation last Monday reported Colombia Feb coffee exports fell -6% y/y to 928,000 bags.  

Smaller robusta coffee supplies are bullish for robusta prices after the General Department of Vietnam Customs reported last Thursday that Vietnam's Feb coffee exports were down -34.2% y/y at 122,833 MT and Jan-Feb coffee exports were down -14.7% y/y at 283,339 MT.   Vietnam is the world's largest producer of robusta beans.

Global coffee supplies have tightened.  The Green Coffee Association on February 15 reported U.S. Jan green coffee inventories fell -1.8% m/m to 6.265 mln bags.  Also, robusta coffee inventories have shrunk as ICE-monitored robusta coffee inventories on February 15 declined to 5,933 lots, the lowest since contract rules changed in 2016.  However, robusta inventories have recently recovered and rose to a 3-month high last Wednesday at 7,426 lots.

Smaller global coffee exports support prices after the International Coffee Organization (ICO) reported on February 2 that Oct-Dec global coffee exports fell -2.8% y/y to 30.27 mln bags.  Also,  Coffee exports from Guatemala, the second-largest coffee producer in Central America, fell -8% y/y in January to 172,439 bags.

Robusta has support after coffee trader Volcafe forecasted the global 2023/24 robusta coffee market would see a record deficit of 5.6 mln bags.  Volcafe predicts Indonesia, the world's third-largest robusta producer, will see its 2023/24 robusta coffee production fall to 9.1 mln bags, the smallest robusta crop in 10 years due to damage from excessive rainfall across its growing regions.

The USDA, in its bi-annual report released on December 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.  Meanwhile, the USDA's Foreign Agriculture Service (FAS) on November 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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