Coffee Prices Close At 2-1/4 Month Lows As Rain In Brazil Sparks Fund Selling

Dec arabica coffee (KCZ20) on Thursday closed down -3.90 (-3.52%). Jan ICE Robusta coffee (RMF21) closed down -16 (-1.20%).

Coffee prices on Thursday tumbled to fresh 2-1/4 month lows as recent rain in Brazil eased concerns about dry conditions and sparked fund selling in coffee futures. Somar Meteorologia on Monday reported that rain in Minas Gerais measured 31.5 mm in the past week or 157% of the historical average. Dry weather in Brazil has recently been a supportive factor for sugar prices. The U.S. Climate Prediction Center last Thursday said a La Nina weather pattern has emerged in the Pacific Ocean, which could lead to below-average precipitation in Brazil in Q4.

Weakness in the Brazilian real is also negative for arabica coffee prices as the real on Thursday fell -0.62% and is just above Tuesday’s 4-month low against the dollar. A weaker real encourages export-selling by Brazil’s coffee producers.

Coffee prices are also under pressure on signs of bigger coffee supplies after Conab last Tuesday 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 a positive for coffee prices after the ICO on Thursday 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 on Thursday dropped to a new 20-1/2 year low of 1.098 mln bags. Also, ICE-monitored robusta coffee inventories on Aug 28 fell to a 20-month low of 10,908 lots.

The outlook for a smaller coffee crop in Vietnam, the world’s largest robusta coffee producer, supports robusta prices. The CEO of Simexo Dak Lak, Vietnam’s second-largest coffee exporter, forecast that Vietnam’s 2020/21 coffee production will fall -4.8% to 1.72 MMT, citing lower coffee yields from a drought this year during the coffee tree flowering period in Vietnam’s Central Highlands, the country’s biggest coffee-growing area.

Robusta coffee is seeing support from tighter supplies after the General Department of Vietnam Customs reported 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.


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