Arabica Coffee Closes Higher on Signs of Smaller Global Supplies

May arabica coffee (KCK22) on Tuesday closed up +0.70 (+0.30%), and May ICE Robusta coffee (RMK22) closed down -15 (-0.70%).

Coffee prices Tuesday settled mixed, with arabica posting a 3-1/2 week high.  Signs of smaller global coffee supplies are bullish for prices after last Thursday's International Coffee Organization (ICO) data showed that global coffee exports from Oct-Feb were down -0.8% y/y at 53.2 mln bags.

Arabica coffee also has support on strength in the Brazilian real (^USDBRL), which rose to a new 2-year high against the dollar Tuesday.  A stronger real discourages export selling by Brazil's coffee producers.  

Robusta coffee remains under pressure on increased supplies from Vietnam after Vietnam's General Statistics Office reported last Monday that Vietnam's Jan-March coffee exports jumped +19.4% y/y to 541,000 MT.

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 an 8-1/2 month low Sunday of 27,995.

An easing of dry conditions in Brazil is negative for coffee prices.  Somar Meteorologia reported Monday that rainfall in the Minas Gerais area, which accounts for about 30% of Brazil's arabica crop, was 38.6 mm last week, or 163% of the historical average.

A bearish factor for arabica was the projection from Rabobank Mar 25 that Brazil's 2022/23 arabica coffee crop would climb +31.8% y/y to 41.1 mln bags.

Coffee prices have seen downward pressure from a rebound in coffee inventories after ICE-monitored arabica coffee inventories rose to a 2-month high Mar 25, and ICE robusta inventories climbed to a 2-3/4 month high.  ICE coffee inventories have recovered after arabica inventories last month posted a 22-year low, and ICE robusta inventories posted a 3-1/4 year low.

Coffee prices continue to be undercut by concern that Russia's invasion of Ukraine will derail the global economy, which could curb consumer spending and reduce coffee consumption as consumers tighten their belts and limit their visits to restaurants and cafes.

Signs of tight global coffee supplies are bullish for prices and pushed arabica coffee up to a 10-1/2 year nearest-futures high on Feb 10.   The ICO recently cut its global 2020/21 supply estimate to a deficit of -3.13 mln bags from a previous estimate of a +1.2 mln bag surplus.  In addition, ICO lowered its global 2020/21 its global 2020/21 coffee production estimate to 167.17 mln bags from 168.88 mln bags and raised its 2020/21 global coffee consumption estimate to 170.30 mln bags from 167.68 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's 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.