Coffee Prices Retreat on Dollar Strength

July arabica coffee (KCN22) on Friday closed down -4.30 (-1.85%), and July ICE Robusta coffee (RMN22) closed down -26 (-1.24%).

Coffee prices Friday erased early gains and moved moderately lower due to a stronger dollar.  Another negative factor for coffee prices is an increase in U.S. coffee supplies after the Green Coffee Association reported Thursday that U.S. May green coffee inventories rose +1.6% m/m and +3.2% y/y to 6.004 million bags.

Coffee prices Friday initially moved higher on positive carry-over from Thursday when Safras & Mercado reported that Brazil's 2022/23 coffee harvest is only 28% completed as of June 14, slower than the 5-year average of 36%.  

Excessive dryness in Brazil is bullish for coffee prices.  Somar Meteorologia reported Monday 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.  

On Monday, arabica fell to a 3-week low, and robusta fell to a 1-month low on dollar strength.  The dollar index (DXY00) Tuesday rallied to a new 19-year high, which undercuts most commodities priced in dollars.

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.  

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.

Big Picture Coffee Market Factors: World coffee production in 2020/21 (Oct/Sep) will fall -2.1% y/y to 167.17 mln bags, with global consumption up +3.3% y/y at 170.298 mln bags (ICO).  The world coffee surplus/deficit in 2020/21 will fall into a deficit of -3.128 mln bags from a surplus of +5.965 mln bags in 2019/20 (ICO).  Total Brazil 2020/21 coffee exports rose +13.3% y/y to a record 45.6 mln bags (CeCafe).  ICO data shows global 2020/21 coffee exports (Oct-Sep) rose +1.2% y/y to 128.931 mln bags. 

• Coffee Prices Fall Back on Dollar Strength
• Coffee Closes Higher on Dollar Weakness and Slow Brazil Coffee Harvest
• Coffee Gains on Dollar Weakness and Slow Pace of Brazil Coffee Harvest
• Coffee Closes Higher on Dry Conditions in Brazil