Coffee Prices Fall on the Outlook for Bigger Global Coffee Output

September arabica coffee (KCU22) on Tuesday closed down -4.35 (-1.96%), and Sep ICE Robusta coffee (RMU22) closed down -23 (-1.13%).

Coffee prices Tuesday extended their week-long slide, with arabica falling to a 1-month low and robusta posting a 1-1/2 month low.  Coffee prices remain on the defensive from last Thursday when the USDA, in its bi-annual report, projected 2022/23 global coffee production to climb +4.7% y/y to 174.95 mln bags, primarily due to Brazil's arabica crop entering the on-year of the biennial production cycle.  The USDA also projects 2022/23 global coffee ending stocks to climb +6.3% y/y to 34.704 mln bags.  

Weakness in the Brazilian real is another bearish factor for coffee prices as the real (^USDBRL) Tuesday fell to just above last Friday's 4-1/2 month low against the dollar.  A weaker real encourages export selling by Brazil's coffee producers.  

Robusta coffee remains under pressure on signs of abundant supplies after Vietnam's General Department of Customs reported on June 7 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 June 7 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.

Concern that excessive dryness in Brazil may lead to lower coffee yields might limit the downside in coffee prices.  Somar Meteorologia reported today that Minas Gerais received 0.2 mm of rain last week, or 4% of the historical average.  Minas Gerais accounts for about 30% of Brazil's arabica crop.  

Coffee prices are supported by the slow pace of Brazil's coffee harvest after Safras & Mercado reported last Thursday that Brazil's 2022/23 coffee harvest was only 35% completed as of June 21, slower than the 5-year average of 44%.  

Tightness in coffee inventories is a bullish factor for coffee prices as ICE monitored coffee inventories Tuesday fell to a new 22-year low of 931,591 bags.

Larger U.S. coffee supplies are negative for prices after the Green Coffee Association reported on June 16 that U.S. May green coffee inventories rose +1.6% m/m and +3.2% y/y to 6.004 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 on June 7 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.

• Coffee on the Defensive on Expectations of Bigger Global Coffee Crops
• Coffee Closes Lower on the Outlook for Improved Global Coffee Production
• Coffee Prices on the Defensive as USDA Forecasts Higher Global Coffee Production
• Coffee Falls as USDA Projects Higher 2022/23 Global Output