March arabica coffee (KCH24) on Tuesday closed up +11.30 (+5.91%), and Jan ICE robusta coffee (RMF24) closed up +136 (+4.82%).
Coffee prices Tuesday rallied sharply, with arabica posting an 8-month nearest-futures high and robusta posting a 5-1/2 month high. On Tuesday, concerns that ongoing dry weather in Brazil will damage coffee crops sparked fund buying of coffee. On Monday, Somar Meteorologia reported that Brazil's Minas Gerais region received only 35.1 mm of rainfall in the past week, or 65% of the historical average. Minas Gerais accounts for about 30% of Brazil's arabica crop.
Low coffee inventories are supportive of coffee prices. ICE-monitored arabica coffee inventories fell to a 24-year low of 224,066 bags on November 30. ICE-monitored robusta coffee inventories Tuesday were at 3,418 lots, moderately above the record low of 3,374 lots posted on August 31.
Tight robusta coffee supplies are propelling prices higher. Vietnam's General Department of Customs last Monday reported that Vietnam's Nov coffee exports rose +173% m/m but fell -7.4 % y/y to 119,297 MT and that coffee exports in the first eleven months of this year (Jan-Nov) fell -10.4% y/y to 1.40 MMT. Also, Vietnam's agriculture department on November 3 projected Vietnam's coffee production in the 2023/24 crop year could drop by -10% to 1.656 MMT, the smallest crop in four years, due to drought. Meanwhile, the Vietnam Coffee Association on December 5 projected that 2023/24 Vietnam coffee production would fall to 1.6 MMT to 1.7 MMT, down from 1.78 MMT a year earlier. They also projected that Vietnam's coffee exports in 2023/24 may fall -15 % y/y to 1.411 MMT from 1.660 MMT 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. 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.
A bearish factor for coffee prices was last Thursday's action from Conab to revise its Brazil 2023 coffee production estimate upward by 700,000 bags to 55.1 million bags from a Sep forecast of 50.9 million bags.
An increase in world coffee exports is bearish for prices after the International Coffee Organization (ICO) reported last Friday that global Oct coffee exports rose +0.9% y/y to 9.53 million bags. Also, Brazil's Trade Ministry reported on December 1 that Brazil's Nov coffee exports (not roasted) rose +8.5% y/y to 235,000 MT. In addition, Honduras, Central America's biggest coffee-producing country, said its Nov coffee exports jumped +63% y/y to 110,413 bags.
A bearish factor for coffee is the optimism of more significant future coffee production. The ICO on December 5 projected that 2023/24 global coffee production would climb +5.8% y/y to 178 million bags due to an exceptional off-biennial crop year. ICO also projects global 2023/24 coffee consumption will rise +2.2% y/y to 177 million bags, resulting in a 1 million bag coffee surplus.
The USDA’s Foreign Agriculture Service (FAS) 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. The USDA's 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. The USDA's FAS on November 22 projected that Brazil's 2023/24 arabica production would climb +12.8% y/y to 44.9 mln bags due to higher yields and increased planted acreage. The USDA's FAS also forecasts that 2023/24 coffee production in Colombia, the world's second-largest arabica producer, will climb +7.5% y/y to 11.5 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.
