Coffee Pushes Higher on Brazil Crop Concerns and Tight ICE Inventories

September arabica coffee (KCU22) on Tuesday closed up +3.15 (+1.50%), and Sep ICE Robusta coffee (RMU22) closed up +1 (+0.05%).

Coffee prices Tuesday settled higher.  Concern about lower coffee yields in Brazil is underpinning coffee prices after Somar Meteorologia Monday reported that Minas Gerais received no rain last week.  Minas Gerais accounts for about 30% of Brazil's arabica crop.  

Arabica coffee is also seeing underlying support from tight ICE coffee inventories after ICE monitored arabica coffee inventories Tuesday fell to a new 23-year low of 703,310 bags.

Strength in the Brazilian real (^USDBRL) is also bullish for coffee prices after the real Tuesday rallied to a 2-week high against the dollar.  A stronger real discourages export selling from Brazil's coffee producers.

Abundant robusta coffee supplies are bearish for prices.  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.  

In a bearish factor, the Green Coffee Association reported July 15 that U.S. June green coffee inventories rose +0.8% m/m and +4.7% y/y to a 10-month high of 6.05 million bags.  

Increased coffee supplies are bearish for prices after Cecafe reported on July 6 that Brazil's 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 July 5 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 on July 6 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.

Brazilian coffee farmers harvested 66% of the 2022/23 coffee crop as of July 19, slower than the 5-year average of 73%.

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.
 

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