Coffee Prices Mixed as Last Friday’s Plunge Seen as Excessive

Coffee prices are mixed this morning, with Arabica coffee falling to a 2-week low and robusta coffee down -31 (-1.09%). Arabica coffee has recovered some of last Friday’s losses, but gains are limited as forecasts for rain in Brazil’s coffee-growing regions ease concerns about dry conditions. A decline in the Brazilian real (^USDBRL) today to a 1-week low against the dollar is negative for coffee prices, as the weaker real encourages export selling by Brazil’s coffee producers.

Robusta coffee is under pressure today due to forecasts for rain later this week in Vietnam’s Central Highlands, the country’s main coffee-growing region. The USDA cut its 2023/24 global coffee production and ending stocks estimates, cutting its 2023/24 global coffee production estimate to 171.4 million bags from a June estimate of 174.3 million bags. In a bullish factor for coffee prices, the USDA cut its 2023/24 global robusta production estimate to 74.1 million bags from a June estimate of 78.0 million bags.

Arabica coffee rallied to an 8-1/2 on December 19 on concerns that ongoing dry weather in Brazil will damage coffee crops. Vietnam’s General Department of Customs reported that Vietnam’s 2023 (Jan-Dec) coffee exports fell -9.6% y/y to 1.60 MMT, and the Vietnam Coffee Association projected that 2023/24 Vietnam coffee production would fall to 1.6 MMT-1.7 MMT, down from 1.78 MMT a year earlier. Low coffee inventories support coffee prices, with ICE-monitored arabica coffee inventories falling to a 24-year low of 224,066 bags on November 30 and being just mildly above that level last Friday at 251,224 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. An El Nino pattern typically brings heavy rains to Brazil and drought to India, negatively impacting coffee crop production. Vietnam’s coffee areas may experience drought late this year and in early 2024.

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. The USDA’s Foreign Agriculture Service (FAS) projected that world coffee production in 2023/24 will increase +4.2% y/y to 171.4 million bags, with a +10.7% increase in arabica production to 97.3 million bags and a -3.3% decline in robusta production to 74.1 million bags.

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