Robusta Sharply Higher on a Lack of Shipping Containers in Vietnam

Dec arabica coffee (KCZ21) on Monday closed up +2.70 (+1.35%), and Nov ICE Robusta coffee (RMX21) closed up +73 (+3.42%).

Coffee prices on Monday moved higher, with robusta coffee soaring to a 4-1/3 year nearest-futures high.  Robusta surged Monday as a shortage of shipping containers is curbing coffee exports from Vietnam.  Monday's sharp rally in robusta sparked short-covering in arabica coffee, which recovered from a 2-week low and moved higher.  Arabica initially fell to a 2-week low Monday after Somar Meteorologia reported above-average rain in Brazil last week, which improved soil moisture levels and should boost coffee yields.

Weakness in the Brazilian real against the dollar is also bearish for arabica prices.  The real (^USDBRL) last Friday tumbled to a 6-1/4 month low against the dollar.  A weaker real encourages export selling by Brazil's coffee producers.

Coffee trading in Brazil has recently stalled as surging freight rates, and high coffee prices have prompted coffee roasters to postpone purchases.  Also, coffee growers are holding out for higher prices amid surging labor and fertilizer costs.

Recent rain in Brazil has pressured arabica coffee prices.  Somar Meteorologia on Monday reported that Minas Gerais, a region that accounts for about 30% of Brazil's arabica coffee crop, received 50.7 mm of rain or 172% of the historical average last week.  The all-important flowering period for Brazilian coffee trees began this month, and abundant rain may boost coffee tree flowering and increase coffee yields.  Water availability in the soil in Minas Gerais was at critical levels between 0% and 30%, which is well below the minimum level for crop development of 60%.

Signs of abundant rain in Vietnam that will boost soil moisture levels and coffee yields are a bearish factor for robusta prices.  According to Vietnam's national weather agency, the Central Highlands, the largest growing region of robusta coffee in Vietnam, will receive 10% to 20% more rain than the historical average this month.  Also, Vietnam's national weather agency said the rainy season might extend to the end of November instead of ending in early  November.

Tighter U.S. coffee supplies are supportive of prices.  The Green Coffee Association reported Oct 15 that U.S. Sep green coffee inventories fell to 6,022.923 mln bags, down -1.8% m/m and -5.9% y/y.

Cecafe reported Oct 13 that Brazil Sep green coffee exports fell -29.6% y/y to 2.75 mln bags.  Cecafe said coffee exporters are still struggling to find space in container ships while facing successive cancellations of bookings due to soaring prices.

Another potential bullish factor for coffee prices is the emergence of a La Nina weather pattern across the equatorial Pacific.  The U.S. Climate Prediction Center last Thursday said that a La Nina weather pattern appears to have emerged across the equatorial Pacific Ocean and will likely last through at least February, which might lead to extended droughts in South America.

The International Coffee Organization (ICO) Oct 7 cut its global 2021/21 coffee surplus estimate to 2.39 mln bags from 2.63 mln bags and raised its global coffee consumption estimate to 167.26 mln bags from 167.01 mln bags.  

Signs of smaller supplies in Brazil have been bullish.  On Sep 21, Conab cut its Brazil 2021 arabica coffee production estimate by -8% to a 12-year low of 30.7 mln bags from a May estimate of 33.4 mln bags, down -37% from 48.8 mln bags in 2020.  Also, Archer Consulting said Brazil might have only 21 mln bags of coffee available for export in 2021/22, a -55% drop from a year earlier due to reduced output and inventories.  

Robusta coffee continues to see underlying support from concern about supplies from Vietnam, the world's largest robusta producer.  A lack of containers to ship coffee from Vietnam will hinder exports for the foreseeable future and is bullish for prices.  Also, a record surge in Covid infections in Vietnam prompted Vietnam's Prime Minister to tighten pandemic restrictions.  Vietnam's Sep coffee exports fell -10.2% m/m to 100,340 MT, and cumulative Vietnam coffee exports Jan-Sep are down -5.4% y/y to 1.18 MMT.  In a bearish factor for robusta, however, Conab raised its Brazil 2021 robusta coffee production estimate by +4.5% to a record 16.1 mln bags from a previous forecast of 15.4 mln bags.

On Sep 30, ICO reported global Aug coffee exports fell -0.1% y/y to 10.12 mln bags, although global coffee exports Oct-Aug are up +1.9% y/y at 118.96 mln bags.

Brazil's crop agency Conab on May 25 projected that 2021 Brazil coffee production would fall -23% y/y to a 4-year low of 48.8 mln bags.  Conab said coffee output would fall since Brazil's coffee trees are in the lower-yielding half of a biennial cycle and since drought conditions in key stages of crop development exacerbated a decline in yields.  

ICE arabica coffee inventories on July 28 rose to a 1-3/4 year high of 2.190 mln bags, recovering further from the 21-year low of 1.096 mln bags posted in October of 2020.  However, supplies have since fallen as arabica coffee inventories fell to a 5-3/4 month low last Wednesday.  ICE-monitored robusta coffee inventories on May 20 climbed to a 4-year high of 16,017 lots but have since fallen to a 1-year low of 11,839 lots on Monday.