Arabica Falls on an Upbeat Outlook from Maxar

May arabica coffee (KCK2) this morning is down -5.55 (-2.21%), and Mar ICE Robusta coffee (RMH22) is down -15 (-0.66%).

Coffee prices this morning are moderately lower, with arabica falling to a 1-week low on optimism about Brazil's coffee crop.  Maxar said today that "crop growth will continue in Brazil due to favorable soil moisture and persistent rains."  

Signs of tighter coffee supplies had pushed arabica coffee up to a 10-1/4 year nearest-futures high last Thursday.   ICE-monitored coffee inventories continue to decline and dropped to a 22-year low of 1.017 mln bags Thursday.  Also, ICE-monitored robusta coffee inventories fell to a 3-1/4 year low of 8,882 lots Wednesday.

The Green Coffee Association reported Tuesday that U.S. Jan green coffee inventories fell -0.6% m/m and -0.8% y/y to 5,795,841 bags.

Shrinking global coffee supplies are a major bullish factor for prices.  The International Coffee Organization (ICO) last Tuesday cut its 2020/21 global coffee surplus estimate to 1.20 mln bags from a Jan estimate of 2.41 mln bags.  The ICO also reported 2021/22 global coffee exports from Oct 1-Dec 31 fell -1.6% y/y to 31.289 mln bags.   In addition, data from Cecafe on Feb 2 showed Brazil Jan green coffee exports fell -14% y/y to 2.9 mln bags.

Strength in the Brazilian real is also supportive for coffee prices after the real (^USDBRL) today rallied to a 5-1/2 month high against the dollar.  A stronger real discourages export selling from Brazil's coffee producers.

The pandemic is easing in the U.S., which will lead to reduced restrictions that will be positive for social gatherings and coffee demand.  The 7-day average of new U.S. Covid infections fell to a 2-1/2 month low Thursday of 118,323.

Signs of adequate rain in Brazil that will benefit the country's coffee crop are bearish for prices.  Somar Meteorologia reported Monday that Minas Gerais, a region that accounts for about 30% of Brazil's arabica coffee crop, received 64.3 mm of rain or 136% of the historical average last week.  

The Colombia National Federation of Coffee Growers reported Feb 4 that Colombia Jan coffee production fell -20% y/y to 868,000 bags, and Jan coffee exports fell -1% y/y to 1.063 mln bags.  Colombia is the world's second-largest arabica coffee producer.

A bearish factor for robusta was data from Vietnam's General Statistics Office on Jan 31 that showed Vietnam Jan coffee exports rose +9% y/y to 175,000 MT.  Vietnam is the world's largest robusta coffee producer.

Conab projected Jan 18 that Brazil's 2022 coffee production would climb +16.8% y/y to 55.7 mln bags.  

Arabica coffee prices are seeing support from expectations of lower global supplies due to unfavorable weather and supply chain disruptions.  Drought and recent frost events have devastated Brazil's coffee crop this year and have curbed the growth potential for the country's coffee crop for the next two years.  Conab reported Dec 16 that Brazil 2021 arabica coffee production fell to 31.4 mln bags, down -36% from 48.8 mln bags in 2020.  The USDA's FAS projects that Brazil's 2021/22 coffee exports would tumble -27% y/y to 33.2 mln bags from a record 45.67 mln bags in 2020/21 as drought and frosts curbed coffee production.

A supportive factor for robusta is the smaller robusta supply from Vietnam after Vietnam's General Statistics Office reported last Thursday that total Vietnam 2021 coffee exports fell by -0.2% y/y to 1.61 MMT.  Surging freight costs and the limited availability of shipping containers have reduced coffee exports from Vietnam, the world's top producer of robusta beans and the second-largest overall coffee producer.