Arabica Coffee Closes At A 1-Week Low As European Lockdown Measures May Curb Coffee Demand

Dec arabica coffee (KCZ20) on Thursday closed down -0.10 (-0.09%). Jan ICE Robusta coffee (RMF21) closed up +10 (+0.78%).

Coffee prices on Thursday settled mixed with robusta at a 1-week high. Coffee prices initially opened lower Thursday with arabica at a 1-week low on concern the new lockdown measures imposed in some of Europe’s biggest cities will curb coffee consumption and demand. France on Thursday imposed a curfew in 9 of its biggest cities between 9 p.m. and 6 a.m. for four weeks starting Saturday, and Londoners will be banned from mixing with other households indoors starting this weekend.

Robusta climbed to a 1-week high Thursday, and arabica recovered most of its losses after updated weather forecasts reduced the chances of rain this week in Brazil’s coffee-growing regions.

Robusta London chart November 2020, session October 15, 2020

Robusta London chart November 2020, session October 15, 2020

Tuesday’s data from CeCafe was bearish for coffee as it showed Brazil Sep green coffee exports jumped +11.5% y/y to 3.5 mln bags, the highest ever volume for September.

Maxar said Monday that Minas Gerais, Brazil’s largest arabica coffee-growing region, received rain over the weekend and could get as much as 2 inches more during Oct 15-16. Also, Somar Meteorologia, on Monday forecast additional rain for Minas Gerais between Oct 20-28.

On Monday, Arabica coffee rose to a 2-week high on concern that dry conditions in Brazil will curb coffee yields. Coffee growing areas of Minas Gerais have faced above-average temperatures and a lack of significant rain in the past five months, which has depleted soil moisture levels and water resources for irrigation. Marex Spectron on Oct 2 said Brazil’s 2021 coffee crop faces a “severe” drought impact as the 2021 crop is in the lower-yielding half of a biennial cycle, and a fall in coffee yields maybe twice as much as normal because of drought.

The U.S. Climate Prediction Center on Sep 24 said a La Nina weather pattern has emerged in the Pacific Ocean, which could lead to below-average precipitation in Brazil in Q4.

Another supportive factor for arabica is reduced coffee supplies from Colombia, the world’s second-largest grower of arabica beans. Colombia reported last Tuesday that its Sep coffee exports fell -12% y/y to 886,000 bags.

Arabica coffee prices fell to a 2-1/2 month low Oct 2, and robusta fell to a 2-1/2 month low last Thursday on the outlook for ample global supplies. The International Coffee Organization (ICO) on Oct 2 raised its global 2019/20 coffee surplus estimate to 1.54 mln bags from a prior estimate of 952,000 bags as it cut its 2019/20 global coffee consumption estimate to a decline of -0.5% y/y to 167.807 mln bags from a prior estimate of +0.3% y/y.

Robusta coffee was also undercut after Vietnam’s Department of Agriculture and Rural Development last Monday forecast 2020/21 coffee production in Vietnam’s Central Highlands, Vietnam’s largest robusta coffee growing region, will climb +1.7% y/y to 524,144 MT.

Weakness in the Brazilian real has been a negative factor for arabica coffee prices as the real sank to a 4-1/2 month low against the dollar on Oct 2. A weaker real encourages export-selling by Brazil’s coffee producers. Safras & Mercado on Oct 2 said that the real’s weakness against the dollar and robust coffee sales by farmers might push Brazil’s 2020/21 coffee exports up to a record 41.8 mln bags.

Coffee prices are also under pressure on signs of bigger coffee supplies after Conab on Sep 22 said it sees Brazil 2020 arabica coffee output at 47.4 mln bags, up +38% y/y and above a previous estimate of 46 mln bags. Demand concerns also weighed on coffee as a resurgence of the global Covid pandemic may prompt countries to re-impose lockdowns that curb economic growth and coffee consumption.

Smaller global supplies are positive for coffee prices after the ICO on Oct 1 reported that global coffee exports Oct-Aug were down -5.6% y/y at 116.54 mln bags.

Coffee prices have support from dwindling inventories. ICE-monitored arabica coffee inventories last Monday dropped to a new 20-1/2 year low of 1.096 mln bags. Also, ICE-monitored robusta coffee inventories on Wednesday fell to a 1-3/4 year low of 10,808 lots.

Robusta coffee has some support from tighter supplies after the General Department of Vietnam Customs reported last Tuesday that Vietnam’s cumulative Vietnam Jan-Sep coffee exports fell -1.4% y/y to 1.251 MMT. The USDA’s Foreign Agricultural Service (FAS) on June 10 forecasted that Vietnam’s 2020/21 coffee production would fall -3.5% y/y to 30.2 mln bags.

Source: Barchart

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