Coffee Prices Fall on Dollar Strength and Increased U.S. Supplies

May arabica coffee (KCK22) this morning is down -3.50 (-1.57%), and May ICE Robusta coffee (RMK22) is down -33 (-1.58%).

Coffee prices this morning are moderately lower, with arabica posting a 2-1/2 week low and robusta falling to a 6-week low.  Today, a rally in the dollar index to a 2-year high is undercutting most commodity prices, including coffee.  

An increase in U.S. coffee supplies is also negative for prices after the Green Coffee Association reported Monday that U.S. March green coffee inventories rose +1.0% m/m and +2.5% y/y to 5.82 million bags.

Coffee prices were already on the defensive on demand concerns, with the war in Ukraine showing no signs of ending.  That boosts concern that Russia's invasion of Ukraine will lead to faster inflation, curb consumer spending, and reduce coffee consumption 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.

A supportive factor for coffee is signs of excessive dryness in Brazil after Somar Meteorologia reported Monday that rainfall in the Minas Gerais area, which accounts for about 30% of Brazil's arabica crop, was 7.7 mm last week, or only 40% of the historical average.

Concern about tighter global supplies is supportive of coffee prices.  Brazil's coffee export council, CeCafe, reported last 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 April 5 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.

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.