Coffee Prices Fall On Brazilian Real Weakness

Monday’s closing prices for September arabica coffee (KCU22) were -7.20 (-3.27 percent) and September ICE Robusta coffee (RMU22) was -15. (-0.76 percent ).

Coffee costs The Brazilian real (USDBRL) fell by -2.01 percent against the dollar on Monday, precipitating a sharp decline in the dollar’s value. The weakening Brazilian real encourages coffee exports by Brazilian producers.

The news that Brazilian coffee farmers had harvested 48 percent of this year’s crop by July 5 caused a decline in coffee prices.

Concerns that excessive dryness in Brazil could reduce coffee yields are providing some underlying support for coffee prices. Somar Meteorologia reported on Monday that Minas Gerais did not receive any precipitation last week, which is 0% of the average for the region. That was the second week in a row without precipitation. Minas Gerais is responsible for approximately 30% of Brazil’s arabica crop.

The International Coffee Organization (ICO) reported last Tuesday that global 2022 coffee exports for Oct-May were up +1.3 percent y/y to 88,506 million bags, which is bearish for coffee prices. Additionally, the Colombia Coffee Growers Federation reported on Wednesday that the country’s exports of coffee in June increased +6% year-over-year to 939,000 bags. Colombia is the second largest producer of arabica beans in the world.

Vietnam’s General Department of Customs reported at the end of June that Vietnam’s June coffee exports increased +13.3 percent y/y to 145,000 MT, and Jan-June coffee exports increased +21.7 percent y/y to 1.027 MMT. Vietnam is the largest producer of robusta coffee beans in the world. The USDA on June 7 revised its estimate for Vietnam’s coffee production for 2021-22 from 31.1 million bags to 31.58 million bags, but projected a decline of -2.2 percent y/y to 30.9 million bags for 2022/23.

The diminishing ICE coffee supply is a factor that supports arabica coffee. Last Friday, ICE-monitored arabica coffee inventories fell to a new 22-year low of 789,981 bags.

In its semi-annual report released on June 23, the USDA projected that 2022/23 global coffee production would increase +4.7 percent y/y to 174.95 million bags, primarily as a result of Brazil’s arabica crop entering the on-year of its biennial production cycle. The USDA also projects that global coffee ending stocks will increase by +6.3 percent year-over-year to 34,704 million bags in 2022/23.

The International Coffee Organization (ICO) recently revised its supply forecast for 2020/21 from a surplus of +1.2 million bags to a deficit of -3.13 million bags. In addition, ICO reduced its global coffee production forecast for 2020/21 to 167.17 million bags from 168.88 million bags and increased its global coffee consumption forecast for 2020/21 from 167.68 million bags to 170.30 million bags.

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