Coffee Prices Consolidate Recent Losses

Rich Asplund - Barchart - Mon Jul 3, 2023

Sep arabica coffee (KCN23) this morning is up +1.75 (+1.10%), and Sep ICE robusta coffee (RMN23) is up +50 (+2.01%).

Coffee prices this morning are moderately higher as they consolidate last week's losses. Sep arabica coffee last Thursday posted a 5-month low, and Sep robusta fell to a new 1-month low. Coffee prices are being undercut by favorable weather in Brazil that has eased frost fears and paved the way for an even quicker harvest. Also, an increase in supplies is bearish for prices after coffee exports from Honduras, the largest coffee-producing country in Central America, rose +37% y/y in June to 1.004 million bags.

Somar Meteorologia reported today that Brazil's Minas Gerais region received+0.1 mm of rain in the previous week, only 5% of the historical average. Minas Gerais accounts for about 30% of Brazil's arabica crop. The dry conditions should boost the pace of the Brazil coffee harvest. Cooxupe, Brazil's coffee export cooperative, reported last Wednesday that Brazil's coffee harvest was 27.8% completed as of June 23, well ahead of the 19.2% completed at the same time last year.

In a supportive factor for arabica coffee, ICE-monitored arabica coffee inventories on Jun 21 fell to a 7-month low of 541,139 bags, rebounding mildly to 544,915 bags Friday. Meanwhile, ICE-monitored robusta coffee inventories last Monday fell to a new 3-1/2 month low of 7,335 lots but rebounded slightly to 7,395 lots on Thursday.

Robusta may be vulnerable to long liquidation pressure as net long positions remain high. Last Friday's Commitment of Traders Report showed that funds in the week ended June 27 reduced their net-long position in ICE robusta coffee futures by -1,103 to 46,912, but that was just mildly below the previous week's 1-1/2 year high of 48,015.

Coffee prices saw support last Tuesday after Rabobank raised its 2022/23 coffee deficit forecast to -6.4 million bags due to a 3.6 million bag cut in its 2022/23 coffee production estimate to 164 million bags. The lower production estimate was caused mainly by lower production in Brazil and Colombia. However, Rabobank is expecting a neutral coffee balance in 2023/24, with a surplus in arabica and a deficit in robusta. Coffee trader Volcafe recently forecasted the global 2023/24 robusta coffee market would see a record deficit of 5.6 mln bags.

The USDA Foreign Agricultural Service forecasted in its June biannual report, released on June 22, that world coffee production in 2023/24 will increase +2.5% y/y to 174.3 million bags, with a +6.9% increase in arabica production to 96.3 million bags, and a -2.4% decline in robusta production to 78.0 million bags. USDA FAS is forecasting that 2023/24 Brazilian coffee production will rise by +14.5% to 67.9 million bags, while Vietnam's 2023/24 production will fall -3.5% to 30.2 million bags. USDA FAS is forecasting that 2023/24 ending stocks will edge higher by +0.8% to 31.8 million bags from 31.6 bags in 2022-23.

The U.S. Climate Prediction Center on June 8 declared an El Nino weather event, which is likely to be supportive of coffee prices. The U.S. Climate Prediction Center said sea surface temperatures across the equatorial Pacific Ocean had risen 0.5 degrees Celsius above normal, and wind patterns have changed to the point where El Nino criteria have been met. An El Nino pattern typically brings heavy rains to Brazil and drought to India, negatively impacting coffee crop production. The El Nino event may bring drought to Vietnam's coffee areas late this year and in early 2024, according to an official from Vietnam's Institute of Meteorology, Hydrology, and Climate Change.

Illustrating a tight coffee supply picture in 2022/23, the International Coffee Organization (ICO) said the global 2022/23 coffee market deficit widened to -7.3 mln bags from a -7.1 mln bag deficit in 2021/22. ICO reported that 2022/23 global coffee production increased +1.7% y/y to 171.27 mln bags, but that 2022/23 global coffee consumption increased +1.7% y/y to a larger 178.53 mln bags.

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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.