Coffee Prices Fall on Demand Concerns

May arabica coffee (KCK22) on Wednesday closed down -8.55 (-3.66%), and May ICE Robusta coffee (RMK22) closed down -7 (-0.33%).

Coffee prices Wednesday extended Tuesday's decline and fell sharply on demand concerns.  Coffee prices are under pressure after Russian President Putin said Tuesday that peace talks with Ukraine are "at a dead end," and he vowed to continue the war.  That fueled the ongoing concern that Russia's invasion of Ukraine will boost inflation, curb consumer spending, and reduce coffee consumption and demand as consumers tighten their belts and limit their visits to restaurants and cafes.

Increased supplies from Vietnam are bearish for robusta prices after Vietnam's General Statistics Office reported on Mar 28 that Vietnam's Jan-March coffee exports jumped +19.4% y/y to 541,000 MT.

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

On Monday, arabica coffee posted a 1-1/4 month high on news of excessive dryness in Brazil.  Somar Meteorologia on Monday reported that rainfall in the Minas Gerais area, which accounts for about 30% of Brazil's arabica crop, was 15.5 mm last week, or only 77% of the historical average.

Concern about tighter global supplies is supportive of coffee prices.  Brazil's coffee export council, CeCafe, reported Monday that Brazil's Mar green coffee exports fell -by 5.8% y/y to 3.267 mln bags.  Also, Colombia, the world's second-biggest arabica producer, reported last Tuesday that its March coffee production fell -by 13% y/y to 914,000 bags.  In addition, the International Coffee Organization (ICO) on March 31 reported that global coffee exports during Oct-Feb fell -by 0.8% y/y to 53.2 mln bags.

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

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 -by 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 on 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.