Dec arabica coffee (KCZ23) on Friday closed up +5.15 (+3.34%), and Nov ICE robusta coffee (RMX23) closed up +61 (+2.44%).
Coffee prices Friday rallied sharply higher and posted 5-week highs. Strength in the Brazilian real (^USDBRL) is bullish for coffee prices as the real rallied to a 2-week high Friday against the dollar. A stronger real discourages export selling from Brazil's coffee producers.
Current coffee supplies are tight as ICE-monitored arabica coffee inventories on Tuesday dropped to a 10-month low of 442,548 bags. Also, ICE-monitored robusta coffee inventories on August 31 fell to a record low of 3,374 lots (data history back to 2016), although those inventories have since rebounded slightly to a 4-week high Friday.
Robusta coffee has carryover support from Monday when Vietnam's General Department of Customs reported that Vietnam coffee exports in the first eight months of this year (Jan-Aug) fell -5.4% y/y to 1.21 MMT. Also, Vietnam's coffee harvest this year is expected to drop more than -7% to 1.67 MMT, the smallest crop in four years, according to a Bloomberg survey of exporters and traders released on May 3. Vietnam is the world's largest producer of robusta coffee beans.
In a bullish factor, the International Coffee Organization (ICO) reported last Thursday that global coffee exports from Oct-Jul were down -5.7% y/y at 103.736 mln bags. Also, the Colombian Coffee Growers Federation reported on August 9 that Colombian July coffee exports fell -17% y/y to 846,000 bags. Colombia is the world's second-largest producer of arabica coffee beans. However, Honduras, the largest coffee-producing country in Central America, reported on July 31 that its coffee exports rose +63% y/y in July to 828,499 bags.
Somar Meteorologia reported Monday that Brazil's Minas Gerais region received 5.1 mm of rain in the past week, or 37% of the historical average. Minas Gerais accounts for about 30% of Brazil's arabica crop.
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.
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 forecasts 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 forecasts that 2023/24 ending stocks will edge higher by +0.8% to 31.8 million bags from 31.6 million bags in 2022-23.
Illustrating a tight coffee supply picture in 2022/23, the 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.
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.
