Strong Brazil Output Weighs on Arabica Coffee

Coffee prices on Friday settled mixed, with robusta coffee climbing to a 5-1/2 month high. The cash coffee market for robusta beans is tight as farmers in Vietnam and Brazil hold back sales in the spot market in anticipation of higher prices. Arabica coffee is under pressure after Conab revised their Brazil 2023 coffee production estimate upward by 700,000 bags to 55.1 million bags from a Sep forecast of 50.9 million bags. Robusta also has support as Vietnam’s General Department of Customs reported that Vietnam’s Nov coffee exports rose +173% m/m but fell -7.4% y/y to 119,297 MT and that coffee exports in the first eleven months of this year (Jan-Nov) fell -10.4% y/y to 1.40 MMT.

Ongoing dry weather in Brazil risks damaging coffee crops and has boosted coffee prices. Somar Meteorologia reported that Brazil’s Minas Gerais region received only 36.5 mm of rainfall in the past week, or 53% of the historical average. Shrinking ICE coffee inventories are bullish for coffee prices as ICE-monitored arabica coffee inventories fell to a 24-year low of 224,066 bags last Thursday. On Friday, ICE-monitored robusta coffee inventories were at 3,456 lots, moderately above the record low of 3,374 lots posted on August 31.

An increase in world coffee exports is bearish for prices, as the International Coffee Organization (ICO) reported that global Oct coffee exports rose +0.9% y/y to 9.53 million bags. Brazil’s Trade Ministry reported that Brazil’s Nov coffee exports (not roasted) rose +8.5% y/y to 235,000 MT. Honduras, Central America’s biggest coffee-producing country, said its Nov coffee exports jumped +63% y/y to 110,413 bags.

The U.S. Climate Prediction Center declared an El Nino weather event on June 8, which is likely to be supportive of coffee prices. A bearish factor for coffee is reduced supply fears, as ICO projected that 2023/24 global coffee production will climb +5.8% y/y to 178 million bags due to an exceptional off-biennial crop year.

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