Arabica Coffee Closes Sharply Lower on Dollar Strength

September arabica coffee (KCU22) on Friday closed down -9.85 (-4.49%), and Sep ICE Robusta coffee (RMU22) closed down -2 (-0.10%).

Arabica coffee Friday sold off sharply as a rally in the dollar index to a 1-week high fueled long liquidation pressure in coffee futures after the rally seen in the past several weeks.

Smaller coffee supplies from Colombia are supportive of arabica prices.  The National Federation of Coffee Growers reported Wednesday that Colombia's July coffee production fell -22% y/y to 944,000 bags.  Colombia is the world's second-largest producer of arabica beans,

Tightness in ICE-monitored arabica coffee inventories is bullish for prices after ICE inventories fell to a new 23-year low of 660,564 bags on Friday, the lowest level since 1999.

Dry conditions in Brazil may curb coffee yields and are bullish for prices.  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.  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 Friday's data from Safras and Mercado, Brazilian coffee farmers harvested 83% of the 2022/23 coffee crop as of Aug 2, modestly below the 5-year average of 86%.

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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