Coffee Prices Slightly Lower on Reduced Frost Risks in Brazil

July arabica coffee (KCN22) on Monday closed down -0.10 (-0.05%), and July ICE Robusta coffee (RMN22) closed down -15 (-0.73%).

Coffee prices Monday closed slightly lower after updated weather forecasts removed the chances for frost in Brazil next week.  Climatempo said Monday that another cold front is expected to move into Brazil next week, but it should be milder with no frost risk.

Another bearish factor for coffee prices was last Friday's projection from Rabobank for the global 2022/23 coffee market to revert to a surplus of 1.7 mln bags compared with a deficit of -5.1 mln bags in 2022/22.  Rabobank expects Brazil 2022/23 coffee production to climb +14% y/y to 64.5 million bags.  Also, the war in Ukraine and China's Covid lockdowns are expected to temper global coffee demand.

Losses in arabica Monday were limited after the Brazilian real (^USDBRL) rallied to a 1-month high against the dollar.  A stronger real discourages export selling by Brazil's coffee producers.

Last Thursday, coffee prices were undercut when Conab raised its estimate for Brazil's 2022 coffee crop by +12% to 53.4 mln bags from a previous estimate of 47.7 mln bags.  

An increase in U.S. coffee supplies is bearish for prices after the Green Coffee Association reported last Monday that U.S. Apr green coffee inventories rose +1.5% m/m and +2.5% y/y to 5.907 million bags.

Dry conditions in Brazil may curb coffee yields and are bullish for prices.  Somar Meteorologia reported Monday that Minas Gerais received 11.5 mm of rain in the past week, or 52% of the historical average.  Minas Gerais accounts for about 30% of Brazil's arabica crop.  

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

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.  

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 on 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 frost events 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.