Coffee Finds Support on Dollar Weakness and Smaller Global Supplies

July arabica coffee (KCN22) on Tuesday closed up +2.05 (+0.95%), and July ICE Robusta coffee (RMN22) closed up +8 (+0.38%).

Coffee prices Tuesday settled moderately higher, with robusta posting a 1-week high.  A weaker dollar Tuesday sparked short-covering in coffee futures.  Also, signs of smaller global coffee supplies supported prices after the International Coffee Organization (ICO) reported that global 2022 coffee exports during Oct-Mar fell -0.1% y/y to 66.25 mln bags.  

Dry weather in Brazil is providing continued support for coffee prices.  Somar Meteorologia reported Monday that there was only 2.5 mm of rainfall (21% of the historical average) in the Minas Gerais area last week, an area that accounts for about 30% of Brazil's arabica crop.

Increased supply from Vietnam is bearish for robusta prices after Vietnam's General Statistics Office reported last Thursday that Vietnam's Jan-Apr coffee exports jumped +28.4% y/y to 752,000 MT.

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

Concern about tighter global supplies is supportive of coffee prices.  On Apr 11, Brazil's coffee export council, CeCafe, reported 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 on Apr 5 that its March coffee production fell -by 13% y/y to 914,000 bags.  In addition, the International Coffee Organization (ICO) on Mar 31 reported that global coffee exports during Oct-Feb fell -by 0.8% y/y to 53.2 mln bags.  

The International Coffee Organization (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.  However, Citigroup last Wednesday projected that the 2022/23 global coffee market would shift to a surplus of +3.5 mln bags from a 2021/22 global coffee deficit of -7.3 mln bags.

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.