Coffee Prices Close Higher On Concern About Dry Conditions In Brazil
Dec arabica coffee (KCZ20) on Friday closed up +2.50 (+2.25%). Jan ICE Robusta coffee (RMF21) closed up +8 (+0.58%).
Coffee prices on Friday moved higher on concern about dry conditions in Brazil. Data from Somar Meteorologia on Monday showed that rain in Minas Gerais measured 4.6 mm in the past week, or only 27% of the historical average, and forecasts for this upcoming week are for the dry conditions in Brazil to persist.
Weakness in the Brazilian real is negative for arabica coffee prices as the real fell -0.60% on Friday against the dollar, trading just above Thursday’s 4-week low. A weaker real encourages export-selling by Brazil’s coffee producers.
Coffee prices on Wednesday dropped to 2-month lows on signs of bigger coffee supplies after Conab on 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.
A sizeable long position by funds raises the threat of long liquidation pressure. Last Friday’s Commitment of Traders (COT) report showed that funds boosted their net-long positions in ICE arabica coffee futures by 3,381 contracts to a 4-year high of 51,831 contracts in the week ended Sep 15. Last Friday’s COT data showed that funds increased their net-long positions in ICE robusta coffee futures by 1,6025 contracts to a 3-year high of 16,842 contracts in the week ended Sep 15.
Coffee prices earlier this month (Sep 4) surged to an 8-1/2 month high on concern about the dryness in Brazil. Also, 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, according to Maxar.
Coffee prices also have support from dwindling inventories. ICE-monitored arabica coffee inventories on Friday dropped to a new 20-1/2 year low of 1.102 mln bags. Also, ICE-monitored robusta coffee inventories on Aug 28 fell to a 20-month low of 10,908 lots.
On the negative side, the International Coffee Organization (ICO) on Sep 1 projected a 2019/20 coffee surplus as the effects of the global COVID pandemic undercut coffee demand and boosted supplies. ICO last Tuesday said that it now sees a global 2019/20 coffee surplus of +952,000 bags versus its previous forecast for a global coffee deficit of -486,000 bags.
The outlook for a smaller coffee crop in Vietnam, the world’s largest robusta coffee producer, is boosting robusta prices. The CEO of Simexo Dak Lak, Vietnam’s second-largest coffee exporter, forecast that Vietnam 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 Aug 30 that Vietnam’s cumulative Vietnam Jan-Aug coffee exports fell -1.3% y/y to 1.161 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.
Big Picture Coffee Market Factors: World coffee production in 2019/20 (Oct/Sep) will fall -2.2% y/y to 169.344 mln bags with global consumption +0.3% y/y at a record 168.392 mln bags (ICO). The world coffee surplus/deficit in 2019/20 will shrink to a surplus of +952,000 bags from a surplus of +5.2596 mln bags in 2018/19 (ICO). Brazil 2019 coffee exports were a record 36.2 mln bags.