Coffee Declines with Other Commodities on Recession Risks

September arabica coffee (KCU22) on Tuesday closed down -3.60 (-1.60%), and Sep ICE Robusta coffee (RMU22) closed down -38 (-1.90%).

Coffee prices Tuesday posted moderate losses, with robusta falling to a 10-1/4 month low.   Coffee was under pressure Tuesday on concern a potential recession will undercut demand for commodities, including coffee.  Also, signs of increased global supplies are bearish for prices after the International Coffee Organization (ICO) reported Tuesday that global 2022 coffee exports for Oct-May were up +1.3% y/y at 88.506 mln bags.

Coffee prices also fell Tuesday on weakness in the Brazilian real (^USDBRL), which dropped to a 5-month low against the dollar.  The weaker real encourages export selling from Brazil's coffee producers.  

Robusta coffee remains under pressure on signs of abundant supplies after Vietnam's General Department of Customs reported last 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 two weeks.  On June 23, 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.  

Arabica coffee last Friday posted a 1-week high on shrinking coffee supplies.  ICE monitored arabica coffee inventories continued to fall and dropped to a new 22-year low of 823,350 bags on Tuesday.

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 no rain last week, or 0% of the historical average.  Minas Gerais accounts for about 30% of Brazil's arabica crop.  

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 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 Falls with Other Commodities on Recession Risks
• Coffee Closes Moderately Lower as the Brazilian Real Sinks
• Coffee Prices Retreat on Weakness in the Brazilian Real
• Arabica Closes Higher as ICE Coffee Inventories Tighten