Coffee Sales Drop Due to Demand Issues Soft Commodities Rundown

Market Analytics and Technical Considerations

Key Points

On Monday, the March arabica coffee (KCH23) and the January ICE robusta coffee (RMF23) closed down by -2.20, or -1.33%, respectively.

Coffee prices suffered moderate losses on Monday as investors worried that a worsening pandemic in China would result in increased lockdowns that would halt China’s economic activity and have a negative impact on global growth and demand for coffee.

After robusta coffee inventories fell to a new 4-year low on Monday, news of tighter inventories contained losses in robusta. Coffee prices are buoyed by indications of a smaller global coffee production.

Last Tuesday, the Foreign Agriculture Service (FAS) of the United States Department of Agriculture (USDA) reduced its Brazil 2022/23 coffee production forecast by 2.6% to 62.6 million bags, down from 64.3 million bags.

Also, FAS decreased the number of bags of coffee it expected to be produced in Colombia in 2022/23 from 13 million to 12.6 million by -3.1%.Concerns about Brazil’s coffee crop have also helped coffee prices, as Somar Meteorologia reported today that Brazil’s Minas Gerais region received only 58% of the historical average of 36.7 millimeters of rain last week. Minas Gerais represents around 30% of Brazil’s arabica crop.

00:15 01:47 Significant short positions held by hedge funds have increased the likelihood of short-covering pressure in robusta coffee futures. Funds’ net-short robusta coffee positions increased by 898 in the week ending November 22 according to the weekly Commitment of Traders report (COT) and reached a 2-year high of 29,439 contracts.

Prices for rooibos coffee are primarily supported by low inventories. On Friday, ICE’s stock of robusta coffee fell to 8,674 bags, the lowest level in four years.On November 3, ICE’s stock of arabica coffee fell to a 23-year low of 382,695 bags, but on Monday, those stocks rebounded by more than +47% to a 2-1/2-month high of 565,853 bags. The Green Coffee Association reported on November 15 that U.S. October green coffee inventories increased by +5.8% y/y to 6,320,157 million bags, which is a bearish factor.

After the International Coffee Organization (ICO) reported on November 7 that global coffee exports during the months of October through September decreased by -0.4% y/y to 129 million bags, smaller global coffee exports support coffee prices.

Additionally, Colombia’s October coffee exports decreased by 5% year-over-year to 942,000 bags, as reported on November 4 by the Colombia Coffee Growers Federation. The second-largest producer of arabica beans in the world is Colombia. Furthermore,, Brazil’s green coffee exports in October decreased by -2.9% year-over-year to 3.18 million bags, according to Cecafe’s November 17 report.However, Vietnam exported 1.73 MMT of coffee in the 2021/22 season that began on September 30—a four-year high—according to a report issued on October 7 by the General Department of Customs. Vietnam produces the most robusta coffee beans in the world.

After World Weather recently stated that a “pretty good environment” had been created for Brazil’s coffee crop in 2023/24, there is some reason for optimism regarding the outlook for Brazil’s longer-term coffee crop .However, Cooxupe, Brazil’s largest arabica coffee cooperative, stated that the sluggish growth of Brazil’s new coffee crop will likely result in a harvest similar to this year’s.

As adverse weather reduced coffee yields, Brazil’s crop agency Conab reduced its 2022 Brazil coffee production estimate to 50.4 million bags on September 20 from 53.4 million bags in May. The Brazilian biennial coffee crop was supposed to produce more coffee this year, but drought reduced production.

In a bearish development, the USDA predicted in its June biannual report that global coffee production in 2022/23 would rise by +4.7% y/y to 174.95 million bags, primarily as a result of Brazil’s arabica crop entering the first year of the biennial production cycle. The USDA predicts that global coffee ending stocks will rise by 6.3% annually to 34.704 million bags in 2022/23.

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