Coffee Prices Surge on Technical Buying with New Highs

September arabica coffee (KCU22) is up +2.35 (+1.05%), and Sep ICE Robusta coffee (RMU22) is up +35 (+1.58%).

Coffee prices today are seeing technical buying as the NY arabica contract extends Thursday's upside breakout to a new 1-1/2 month high and as the robusta contract extends the 2-week surge to a 7-month high.

Coffee prices today are also seeing continued support from 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.  However, Rural Clima on Monday predicted some rain in Brazil for this week.

Tightness in ICE-monitored arabica coffee inventories is bullish for prices after ICE inventories on Thursday fell to a new 23-year low of 571,905, the lowest level since 1999.

According to Thursday's data from Safras and Mercado, Brazilian coffee farmers harvested 89% of the 2022/23 coffee crop as of Aug 9, slightly behind the 5-year average of 91% but in line with last year's level.  The arabica harvest is 84% complete, while the robusta harvest is 97% complete.

Coffee prices found support Wednesday from a report by Citigroup, which reduced its global coffee production estimate for 2022/23 to 176.2 million bags and reduced its 2022/23 surplus estimate to 3.2 million bags, although that surplus represents more plentiful conditions than the 5 million bag deficit seen in 2021/22.  Citigroup cut its production estimate for Vietnam due to the shortage of fertilizer.

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.  However, Cecafe reported Wednesday that Brazil's July coffee exports fell -16% y/y to 2.17 million bags on logistics and harvest delays at the beginning of the harvest season.

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.  

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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