Coffee Prices Rebound on Concern about Brazil's Fertilizer Supplies

May arabica coffee (KCK22) on Friday closed +1.35 (+0.61%), and May ICE Robusta coffee (RMK22) closed +25 (+1.24%).

Coffee prices on Friday closed higher on concern in Brazil about a shortage of fertilizer supplies.  Russia and Belarus are two of the world's biggest exporters of potash and other soil nutrients, and there is concern that sanctions against both countries could lead to a shortage of soil nutrients for Brazil's farmers.  Brazil imports 80% of the fertilizer it uses.

Coffee prices were under pressure this week, with arabica sliding to a 2-month low Friday and robusta dropping to a 1-month low Thursday.  Coffee prices fell on concern that the spike in energy prices caused by Russia's invasion of Ukraine will derail the global economy.  A slump in the economy could curb consumer spending and reduce coffee consumption as consumers tighten their belts and limit their visits to restaurants and cafes.

Another bearish factor for robusta is larger shipments from Vietnam after Vietnam's General Statistics Office reported Monday that Vietnam Jan-Feb coffee exports rose +3.4% y/y to 305,000 MT.  

Signs of tight global coffee supplies are bullish for prices.  Arabica coffee posted a 10-1/4 year nearest-futures high on Feb 10, and robusta climbed to a 1-1/2 month high last Wednesday.  ICE-monitored coffee inventories continue to decline and fell to a 22-year low of 980,562 bags last Thursday.  Also, ICE-monitored robusta coffee inventories fell to a 3-1/4 year low of 8,818 lots last Tuesday.

Reduced coffee supplies from Colombia are bullish for prices.  The Colombia National Federation of Coffee Growers reported Thursday that Colombia Feb coffee production fell -16% y/y to 928,000 bags, and Feb coffee exports fell -23% y/y to 980,000 bags.  Colombia is the world's second-largest arabica coffee producer.

The Green Coffee Association reported Feb 15 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 supportive factor for prices.  The International Coffee Organization (ICO) on Feb 8 cut its 2020/21 global coffee surplus estimate to 1.20 mln bags from a Jan estimate of 2.41 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.   On Tuesday, ICO reported that 2021/22 global coffee exports during Oct-Jan were down -1.5% y/y to 41.8 mln bags.

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 7-1/4 month low Thursday of 56,717.

Below-normal rainfall in Brazil is supportive of coffee prices.  Somar Meteorologia reported last Monday that Minas Gerais, a region that accounts for about 30% of Brazil's arabica coffee crop, received 20.8 mm of rain or only 39% of the historical average last week.  

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.  However, Conab on Jan 18 projected that Brazil's 2022 coffee production would recover by +16.8% y/y to 55.7 mln bags.

A supportive factor for robusta coffee is the smaller robusta supply from Vietnam after Vietnam's General Statistics Office reported Feb 10 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.