Coffee Prices Decline on Brazilian Real Weakness and Abundant Supplies

September arabica coffee (KCU22) on Wednesday closed down -1.85 (-0.84%), and Sep ICE Robusta coffee (RMU22) closed down -6 (-0.31%).

Coffee prices Wednesday posted moderate losses with robusta falling to a 10-1/2 month low.  Weakness in the Brazilian real weighed on arabica coffee prices after the Brazilian real (^USDBRL) Wednesday fell to a 5-1/4 month low against the dollar.  The weaker real encourages export selling from Brazil's coffee producers.

Bigger coffee supplies from Colombia are also negative for prices after the Colombia Coffee Growers Federation Wednesday reported that Colombia's Jun coffee exports rose +6% y/y to 939,000 bags.  Colombia is the world's second-largest producer of arabica beans.

Robusta fell to a 10-1/2 month low Wednesday and 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.  

Signs of increased global coffee 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 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 that 2022/23 global coffee ending stocks will climb +6.3% y/y to 34.704 mln bags.  

Arabica coffee last Friday posted a 1-week high on shrinking ICE coffee inventories.  ICE monitored arabica coffee inventories continued to fall and dropped to a new 22-year low of 813,845 bags on Wednesday.

Concern that excessive dryness in Brazil may lead to lower coffee yields supports 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.

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.
 

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