Coffee Rallies on Dry Brazil Weather and Tight ICE Inventories

September arabica coffee (KCU22) today is up +6.25 (+2.94%), and Sep ICE Robusta coffee (RMU22) is up +32 (+1.53%).

Coffee prices are seeing support from last week's continued dry conditions in Brazil.  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.  Rural Clima on Monday predicted some rain in Brazil for this week.

Today's sharp sell-off in the dollar is  bullish for coffee prices and the rest of the commodity sector.

Tightness in ICE-monitored arabica coffee inventories is bullish for prices after ICE inventories fell to a new 23-year low of 610,159 bags on Tuesday, the lowest level since 1999.

Smaller coffee supplies from Colombia are supportive of arabica prices.  The National Federation of Coffee Growers reported last 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.

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.

Vietnam's General Department of Customs reported Monday that Vietnam's coffee exports in July fell -17.1% m/m to 113,852 tons.  In the bigger picture, however, Vietnam's exports in the 7 months through July rose +17.3% y/y to 1.13 million tons.  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 Friday's data from Safras and Mercado, Brazilian coffee farmers harvested 83% of the 2022/23 coffee crop as of Aug 2, modestly behind 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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