Arabica Slightly Higher on Smaller Global Supplies

December arabica coffee (KCZ22) on Wednesday closed up +0.05 (+0.02%), and Nov ICE Robusta coffee (RMX22) closed down -11 (-0.49%).

Coffee prices on Wednesday settled mixed, with robusta falling to a 1-week low.  Arabica prices Wednesday recovered from early losses and moved slightly higher, and robusta rebounded from its worst levels on signs of smaller global coffee supplies.  The International Coffee Organization (ICO) reported that global coffee exports in July fell -6.6% y/y to 10.12 mln bags, and total exports from Oct-July were down -0.3% y/y to 108.8 mln bags.

Weakness in the Brazilian real (^USDBRL) undercut coffee prices after the real Wednesday fell to a 1-week low against the dollar.   A weaker real encourages export selling from Brazil's coffee producers.

Coffee prices surged last week to 6-1/4 month highs on concern that excessive dryness in Brazil will reduce coffee yields and curb global coffee supplies.  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.  

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

Robusta coffee has support from smaller global supplies.  Vietnam's General Department of Customs reported Monday that Vietnam's coffee exports in Aug fell -12% m/m and -6.2% y/y to 110,000 tons.  In the bigger picture, however, Vietnam's exports in the eight months through Aug rose +14.7% y/y to 1.242 million metric 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.  

ICE-monitored arabica coffee inventories are tight and bullish for prices.  ICE inventories on Aug 15 fell to a 23-year low of 571,580 bags, although inventories have since recovered moderately to a 4-week high of 672,585 bags Wednesday.

Signs of abundant U.S. coffee supplies are bearish for prices after the report from the Green Coffee Association Aug 15 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 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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