Coffee Prices Sharply Higher on Frost Risks in Brazil

July arabica coffee (KCN22) on Monday closed up +10.90 (+5.10%), and July ICE Robusta coffee (RMN22) closed up +47 (+2.30%).

Coffee prices Monday rallied sharply, with arabica posting a 3-week high and robusta climbing to a 1-week high.  Ramped-up risks of frost in Brazil that could damage the country's coffee crop boosted prices Monday.  Climatempo said Monday that a cold front Wednesday will advance to Minas Gerais, potentially producing frost and damaging arabica coffee crops in the region.  

Concern about smaller coffee supplies from Vietnam is supportive of robusta prices.  The Vietnam Coffee and Cocoa Association warned last Wednesday that the high fertilizer prices might force coffee farmers to reduce their fertilizer usage, which could lead to a 10% drop in coffee production next season.  Vietnam is the world's largest producer of robusta coffee beans.

Last Tuesday, arabica fell to a 6-1/4 month low, and robusta dropped to a 2-1/4 month low as dry conditions continue to ease in Brazil.  Somar Meteorologia reported above-average rain in Minas Gerais for a  second week today, with 13.2 mm of rainfall (138% of the historical average) in the Minas Gerais area last week, an area that accounts for about 30% of Brazil's arabica crop.  

Coffee prices were recently on the defensive from global demand concerns.  The Chinese government said that it would continue with its stringent pandemic lockdowns in Shanghai and Beijing, which will keep restaurants and cafes closed and curb coffee consumption in China.  Also, the war in Ukraine has curbed Brazil's coffee exports, with Brazil's Mar coffee exports to Russia down -72% m/m and down -62% m/m to Ukraine.

A supportive factor for arabica was smaller coffee supplies from Colombia, the world's second-largest arabica producer.  The Colombian Coffee Growers' Federation reported May 5 that Colombian Apr coffee exports dropped -18% y/y to 845,000 bags.

Signs of smaller global coffee supplies are bullish for prices after the International Coffee Organization (ICO) reported May 2 that global 2022 coffee exports during Oct-Mar fell -0.1% y/y to 66.25 mln bags.  

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

Concern about tighter global coffee supplies is supportive of 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.  

Increased supply from Vietnam is bearish for robusta prices after Vietnam's General Statistics Office reported May 5 that Vietnam's Jan-Apr coffee exports jumped +28.4% y/y to 752,000 MT.

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 May 4 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 last 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.