Market Analytics and Considerations
Key points
Thursday saw gains of 3.60 (+2.14%) for March arabica coffee (KCH23) and 31 (+1.62%) for January ICE robusta coffee (RMF23).
Coffee expense Robusta posted a 1-1/2 month high on Thursday, and arabica reached a 2-week high. Arabica increased on Thursday as fund short-covering was triggered by projections for intense rain over the next 10 days in Brazil’s Minas Gerais region. The largest growing area for arabica coffee in Brazil, Minas Gerais, could see flooding from the severe rain, which would reduce yields.
The announcement that ICE-monitored robusta coffee stocks decreased to a 4-and-a-half year low of 7,406 bags today helped robusta coffee gain traction on an ever peak coffee inventories.
Short covering activity can be triggered by a sizable short position taken on arabica coffee futures by commodity funds. In the week ending December 6, funds increased their net-short holdings in arabica coffee by +3,359 holdings, reaching a 2-year high of 22,491 holdings, according to prior Friday’s weekly Commitment of Trades (COT) data.
On the potential downside, Conab increased its 2022 Brazil coffee output projection on Thursday from 50.4 million bags into 50.9 million bags, an increase of +6.7% year over year.
Tuesday’s statistics from Cecafe, which revealed that Brazil’s November green coffee exports increased +19.2% y/y to 3.39 million bags, was a negative factor for coffee prices.
Arabica java As Brazil’s dry weather improved on Monday, it registered a 3-week low. According to a report published on Monday by Somar Meteorologia, the Minas Gerais region of Brazil received 81.1 mm of rain last week, or 124% of the typical amount. In Brazil, Minas Gerais produces roughly 30% of the arabica.
A rise in inventory is a detrimental factor for arabica coffee. The bag count of arabica coffee in ICE’s inventory increased to something like a 4-and-a-half-month high of 732,641 bags on Wednesday from a 23-year bottom of 382,695 bags in Nov. 3.
Robusta is negatively impacted by plentiful Vietnamese coffee supplies. Vietnam’s coffee exports from January to November was increased +13.4% year over year to 1.58 MMT, according to data released last Thursday by the General Statistics Office of Vietnam. Robusta coffee beans are mostly produced in Vietnam.
According to ICO data published on December 2, global coffee exports in October decreased 1.9% year over year to 9.87 million bags.
In a positive development, the USDA’s Foreign Agriculture Service (FAS) on Nov. 22 reduced its forecast for Brazil’s coffee production in 2022–2023 by 2.6%, from 64.3 million bags to 62.6 million bags, from an earlier estimate. Brazil’s biannual coffee harvest was projected to yield greater amounts this year, but the dryness drastically reduced that amount.
After the Colombia Coffee Growers Federation revealed last Monday that Colombia’s Nov net exports plummeted -25% y/y to 854,000 bags, lesser global coffee exports are helping to sustain coffee prices.
The Green Coffee Association announced on Nov. 15 that U.S. green coffee stockpiles increased +5.8% y/y to 6,320,157 million bags, which is a bearish development.
The USDA predicted that worldwide coffee production will increase by 4.7% y/y to 174.95 million bags in 2022–23, which is a bearish development. This increase is mostly attributable to Brazil’s arabica crop entering with an on of the biennial product lifecycle. The USDA anticipates an increase in worldwide coffee terminal stocks of 6.3% year over year to 34.704 million bags in 2022–2023.
