Coffee Prices Rebound on Dollar Weakness and Tight ICE Coffee Inventories

September arabica coffee (KCU22) this morning is up +5.55 (+2.84%), and Sep ICE Robusta coffee (RMU22) is up +21 (+1.09%).

Coffee prices this morning recovered from early losses and are moderately higher, with arabica rebounding from an 8-month low and robusta recovering from a 10-1/2 month low.  Weakness in the dollar today has sparked short-covering in coffee futures.  Tightness in ICE coffee inventories is also supportive for prices after ICE monitored arabica coffee inventories on Thursday dropped to a new 22-year low of 750,702 bags.

This week's weakness in the Brazilian real (^USDBRL) undercut arabica prices after the real Thursday dropped to a new 5-1/2 month low against the dollar.  The weaker Brazilian real encourages export selling by Brazil's coffee producers.

Increased coffee supplies are bearish for prices after Cecafe reported late Wednesday that Brazil Jun green coffee exports rose +0.6% y/y to 2.793 mln bags.

Signs of increased global coffee supplies are bearish for prices after the International Coffee Organization (ICO) reported last Tuesday that global 2022 coffee exports for Oct-May were up +1.3% y/y at 88.506 mln bags.  Also, the Colombia Coffee Growers Federation reported last Wednesday that Colombia's June coffee exports rose +6% y/y to 939,000 bags.  Colombia is the world's second-largest producer of arabica beans.

Vietnam's General Department of Customs reported in late June that Vietnam's June 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.  

Robusta coffee has support from Wednesday when Vicofa, Vietnam's main coffee association, said that Vietnam 2022/23 robusta production might drop as much as -7% after bad weather curbed coffee yields.

Brazilian coffee farmers harvested 59% of the 2022/23 coffee crop as of July 12, below the 5-year average of 65%.

Coffee prices are seeing some underlying support from concern that excessive dryness in Brazil may lead to lower coffee yields.  Somar Meteorologia reported Monday that Minas Gerais received no rain last week, or 0% of the historical average.  That was the second straight week with no rain.  Minas Gerais accounts for about 30% of Brazil's arabica crop.  

In a bearish factor, the USDA, in its bi-annual report released on June 23, 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.  

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.
 

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