Coffee Closes Moderately Lower as the Brazilian Real Sinks

September arabica coffee (KCU22) on Friday closed down -5.45 (-2.37%), and Sep ICE Robusta coffee (RMU22) closed down -27 (-1.33%).

Coffee prices Friday closed moderately lower, with robusta tumbling to a 10-month low.  Coffee prices declined on weakness in the Brazilian real (^USDBRL), which fell to a 4-3/4 month low against the dollar on Friday.  The weaker real encourages export selling from Brazil's coffee producers.  Coffee prices were also under pressure Friday after a tropical storm in the Caribbean moved away from Colombia, reducing the chances of damage to the country's coffee trees.  Colombia is the world's second-largest producer of arabica beans.  

Arabica coffee early Friday initially rallied to a 1-week high on shrinking coffee supplies after ICE monitored arabica coffee inventories Friday fell to a new 22-year low of 854,584 bags.

Robusta coffee remains under pressure on signs of abundant supplies after Vietnam's General Department of Customs reported Tuesday that Vietnam's Jun coffee exports were up +13.3% y/y at 145,000 MT, and Jan-Jun coffee exports rose +21.7% y/y to 1.027 MMT.  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.

Coffee prices had been on the defensive over the past week, with arabica falling to a 5-week low Tuesday and robusta tumbling to a 10-month low Friday.  Last Thursday, the USDA, in its bi-annual report, projected that 2022/23 global coffee production would 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.  

Concern that excessive dryness in Brazil may lead to lower coffee yields might limit the downside in coffee prices.  Somar Meteorologia reported Monday 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%.  

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 after 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.

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 Retreat on Weakness in the Brazilian Real
• Arabica Closes Higher as ICE Coffee Inventories Tighten
• Arabica Climbs on Tight ICE Coffee Inventories
• Coffee Soars on Shrinking ICE Coffee Inventories