Coffee Closes Sharply Higher as Crop Concerns Spark Fund Buying

Coffee prices rose to 2-week highs on Friday, with arabica coffee (KCN24) closing up +8.70 (+4.40%) and ICE robusta coffee (RMN24) closing up +98 (+2.87%). Insufficient rainfall in Vietnam and Brazil may curb global coffee production and have sparked fund buying of coffee futures. Vietnam’s National Weather Agency reported 195.6 mm of rainfall in the ten days from May 1, 41% below the long-term average. Brazil’s Minas Gerais region received no rainfall or 0% of the historical average in the past week, the third consecutive week the area has received no rainfall.

Strength in the Brazilian real (^USDBRL) also sparked short covering in coffee futures as the real Friday climbed to a 1-week high against the dollar, discouraged export selling from Brazil’s coffee producers. A rebound in ICE coffee inventories from historically low levels is undercutting prices. ICE-monitored robusta coffee inventories fell to a record low of 1,958 lots on February 21, but recovered to a 9-month high Friday of 4,312 lots.

Tight robusta coffee supplies from Vietnam, the world’s largest producer of robusta coffee beans, are a bullish factor. Vietnam’s agriculture department projected that Vietnam’s coffee production in the 2023/24 crop year would drop by -20% to 1.472 MMT, the smallest crop in four years, due to drought. The Vietnam Coffee Association said that Vietnam’s 2023/24 coffee exports would drop -20% y/y to 1.336 MMT.

Recent bearish coffee export news include the International Coffee Organization (ICO) reporting that global Mar coffee exports rose +8.1% y/y to 12.99 million bags, and Oct-Mar global coffee exports were up +10.4% y/y at 69.16 million bags. Brazil’s exporter group Comexim raised its Brazil 2023/24 coffee export estimate to 44.9 million bags from a previous estimate of 41.5 million bags.

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