Coffee Prices Close Lower As Weakness In The Brazilian Real Weighs On Arabica

Coffee prices on Friday closed lower. Weakness in the Brazilian real against the dollar on Friday undercut arabica coffee. In addition, Losses in robusta were limited by storms in Vietnam that may damage the country’s coffee crop.

Dec arabica coffee (KCZ20) on Friday closed down -0.85 (-0.77%). Jan ICE Robusta coffee (RMF21) closed down -3 (-0.21%).

The Brazilian real on Friday fell -0.30 against the dollar to a 1-week low. As a result, The weaker real encourages export selling by Brazil’s coffee producers and is bearish for arabica coffee prices.

Weather

Impacts of weather on the price of robusta coffee

Robusta coffee rallied to a new 1-3/4 month high Friday on crop concerns in Vietnam before falling back. The National Weather Agency in Vietnam said that Vietnam’s Central Highlands, the country’s major coffee-growing region, might receive as much as 100-250 mm of rain from the remnants of Tropical Storm Etau; which could flood the region’s coffee farms and reduce coffee yields. Moreover, Typhoon Molave late last month slammed into Vietnam, and damaged crops and infrastructure in the Central Highlands of Vietnam; which will delay Vietnam’s coffee harvest. Robusta coffee supplies are already tight after data from Vietnam’s General Department of Customs showed Vietnam Oct coffee exports fell -8.4% m/m to 91,372 MT; and Jan-Oct exports are down -1.2% y/y at 1.34 MMT.

A La Nina weather system is prolonging the rainy season in Vietnam’s Central Highlands. The rainy season in the Central Highlands usually ends in the first week of November; but according to the Buon Ma Thuot Coffee Association, the La Nina weather pattern’s influence may prolong the rainy season until the end of November. 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.

Impacts of weather on the price of arabica coffee

Arabica coffee has support on recent dryness in Brazil’s coffee-growing regions. On Monday, data from Somar Meteorologia showed rain in Minas Gerais – Brazil’s largest arabica coffee-growing region, measured 8.2 mm last week; or only 19% of the historical average. In fact, 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. 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.

Wednesday’s data from CeCafe was negative for coffee prices as it showed Brazil Oct green coffee exports jumped +14.4% y/y to 3.8 mln bags.

The Covid 19

Surging Covid infections throughout the world have prompted governments to impose new restrictions that have curbed coffee consumption. The Covid virus has now infected 53.260 million persons globally, with deaths exceeding 1.302 million.

Inventory

Coffee inventories have rebounded recently, which is bearish for prices. ICE-monitored arabica coffee inventories rose to a 2-1/4 month high of 1.198 mln bags on Friday; recovering from the 20-1/2 year low of 1.096 mln bags on Oct 5. Also, ICE-monitored robusta coffee inventories climbed to a 6-1/4 month high Friday after they dropped to a 1-3/4 year low of 10,808 lots on Oct 14.

Other factors

Big Picture Coffee Market Factors: World coffee production in 2019/20 (Oct/Sep) fell -2.5% y/y to 168.836 mln bags; with global consumption down -0.9% y/y at 167.593 mln bags (ICO). The world coffee surplus/deficit in 2019/20 shrank to a surplus of +1.244 mln bags from a surplus of +3.975 mln bags in 2018/19 (ICO). Brazil 2019 coffee exports were a record 36.2 mln bags.

Source: Barchart – Fri Nov 13

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