Arabica Coffee Rallies on Tight ICE Inventories and Brazil Dryness

September arabica coffee (KCU22) on Wednesday closed up +4.75 (+2.26%), and Sep ICE Robusta coffee (RMU22) closed down -1 (-0.05%).

Coffee prices Wednesday settled mixed.  Arabica coffee received support from tight ICE-monitored arabica coffee inventories, which fell to a new 23-year low of 695,135 bags on Wednesday, the lowest level since 1999.

Coffee prices are also seeing support from dry conditions in Brazil.  Somar Meteorologia Monday reported that Minas Gerais received 0.6 millimeters of rain last week, or only 17% of the historical average.  Minas Gerais accounts for about 30% of Brazil's arabica crop.

News of increased global coffee exports is bearish for coffee prices.  The International Coffee Organization (ICO) reported Aug 2 that global coffee exports in June rose +1.3% y/y to 1.11 million bags and that cumulative coffee exports in Oct-June rose +0.5% y/y to 98.77 million bags.  Honduras, the world's fourth-largest producer of arabica beans, reported on Aug 1 that July coffee exports fell -by 38% y/y to 409,668 bags due to a poor crop.  Colombia's June coffee exports rose +6% y/y to 939,000 bags, according to a report from the Colombia Coffee Growers Federation report on July 6.  Colombia is the world's second-largest producer of arabica beans.  Brazil's June green coffee exports rose +0.6% y/y to 2.793 mln bags, according to a Cecafe report on July 6.

Abundant robusta coffee supplies are bearish for prices.  Vietnam's General Department of Customs reported last Friday that Vietnam's 2022 coffee exports from Jan-July coffee were up +18.4% y/y at 1.144 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.  

According to last Thursday's data from Safras and Mercado, Brazilian coffee farmers harvested 75% of the 2022/23 coffee crop as of July 26, slower than the 5-year average of 80%.

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

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