Arabica Coffee Rallies on Excessive Dryness in Brazil

September arabica coffee (KCU22) on Tuesday closed up +6.35 (+2.83%), and Sep ICE Robusta coffee (RMU22) closed up +17 (+0.76%).

Arabica coffee on Tuesday extended Monday's sharp gains to a 7-week high on concern that excessive dryness in Brazil will reduce coffee yields and curb global coffee supplies.  On Monday, Somar Meteorologia reported that Minas Gerais received no rain in the past week or 0% of the historical average.  Minas Gerais accounts for about 30% of Brazil's arabica crop.  Also, Climatempo on Monday forecasted no rain for Brazil's coffee-growing regions through the rest of this month.

Maxar Technologies said Monday that La Nina weather conditions are likely to last through the end of the year, which suggests less-than-normal rain for Brazil through year-end.  That would exacerbate drought conditions and further stress Brazil's coffee crops.

Strength in the Brazilian real (^USDBRL) is also bullish for coffee prices.  The real Tuesday climbed to a 1-week against the dollar, discouraging export selling from Brazil's coffee producers.  

ICE-monitored arabica coffee inventories are tight and are bullish for prices.  ICE inventories last Monday fell to a new 23-year low of 571,580 although inventories have since recovered modestly to a 2-week high of 653,667 bags on Tuesday.

Robusta coffee last Monday rallied to a 5-1/4 month nearest-futures high.  Vietnam's General Department of Customs reported last 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 seven 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.  

Signs of abundant U.S. coffee supplies are bearish for prices after last Monday's report from the Green Coffee Association showed U.S. July green coffee inventories rose +2.9% m/m and +2.5% y/y to a 1-3/4 year high of 6.223 mln bags.  

Smaller coffee supplies from Colombia are supportive of arabica prices.  The National Federation of Coffee Growers reported Aug 3 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 Aug 10 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.

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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