Coffee Tumbles on a Broad-Based Slide in Commodities

July arabica coffee (KCN22) this morning is down -7.30 (-3.19%), and July ICE Robusta coffee (RMN22) is down -46 (-2.21%).

Coffee prices this morning are sharply lower for a second day, with arabica dropping to a 2-week low and robusta falling to a 1-month low.   A rally in the dollar index today to a 19-1/2 year high has caused a broad-based sell-off in commodity prices.  Also, a slump in global equity markets today on concern about the increased risks of a U.S. recession is weighing on coffee prices.

Arabica coffee has underlying support from dry conditions in Brazil.  Somar Meteorologia reported today that Minas Gerais received only 4.7 mm of rain last week, or 46% of the historical average.  Minas Gerais accounts for about 30% of Brazil's arabica crop.  

Robusta coffee remains under pressure on signs of abundant supplies after Vietnam's General Department of Customs reported last Tuesday that Vietnam's May coffee exports were up +9.3% y/y at 142,329 MT and Jan-May coffee exports rose +23.2% y/y to 881,565 MT.  Vietnam is the world's biggest producer of robusta coffee beans.  The USDA last Thursday revised its 2021-22 coffee production estimate for Vietnam upward to 31.58 million bags from 31.1 million bags but said 2022/23 production would fall by -2.2% y/y to 30.9 million bags.

A supportive factor for arabica coffee is the smaller output in Colombia, the world's second-largest arabica producer.  The Colombia Coffee Growers Federation reported last Tuesday that Colombia's Jan-May coffee production was down -4% y/y at 4.5 million bags.  

An increase in U.S. coffee supplies is bearish for prices after the Green Coffee Association reported May 23 that U.S. Apr green coffee inventories rose +1.5% m/m and +2.5% y/y to 5.907 million 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 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.