July arabica coffee (KCN24) on Friday closed up +8.70 (+4.40%), and July ICE robusta coffee (RMN24) closed up +98 (+2.87%).
Coffee prices Friday rallied to 2-week highs and finished sharply higher. Insufficient rainfall in Vietnam and Brazil may curb global coffee production and has sparked fund buying of coffee futures. On Monday, Vietnam's National Weather Agency said rainfall in Vietnam's Central Highland, the main coffee-growing region, totaled 195.6 mm in the ten days from May 1, 41% below the long-term average.
Also, Somar Meteorologia reported Monday that Brazil's Minas Gerais region received no rainfall or 0% of the historical average in the past week, the third consecutive week the area has received no rainfall. Minas Gerais accounts for about 30% of Brazil's arabica crop.
Strength in the Brazilian real ([^USDBRL](https://www.barchart.com/forex/quotes/%5EUSDBRL/overview)) also sparked some short covering in coffee futures as the real Friday climbed to a 1-week high against the dollar. The stronger real discourages export selling from Brazil's coffee producers.
A rebound in ICE coffee inventories from historically low levels is undercutting prices. ICE-monitored robusta coffee inventories on February 21 fell to a record low of 1,958 lots, although they recovered to a 9-month high Friday of 4,312 lots. Also, ICE-monitored arabica coffee inventories fell to a 24-year low of 224,066 bags on November 30, but they recovered to a 13-month high Friday of 760,383 bags.
Tight robusta coffee supplies from Vietnam, the world's largest producer of robusta coffee beans, are a bullish factor. On March 26, Vietnam's agriculture department projected that Vietnam's coffee production in the 2023/24 crop year would drop by -20% to 1.472 MMT, the smallest crop in four years, due to drought. Also, the Vietnam Coffee Association said that Vietnam's 2023/24 coffee exports would drop -20% y/y to 1.336 MMT. Vietnam's General Department of Customs reported last Friday that Vietnam's April coffee exports fell -19.5% m/m and -7% y/y to 152,073 MT.
There has recently been some bearish coffee export news. The International Coffee Organization (ICO) reported on May 3 that global Mar coffee exports rose +8.1% y/y to 12.99 million bags, and Oct-Mar global coffee exports were up +10.4% y/y at 69.16 million bags. Also, Cecafe reported Monday that Brazil's April green coffee exports surged +61% y/y to 3.9 million bags. Brazil's exporter group Comexim, on February 1, raised its Brazil 2023/24 coffee export estimate to 44.9 million bags from a previous estimate of 41.5 million bags. Brazil is the world's largest producer of arabica coffee beans.
This past year's El Nino weather event has been bullish for coffee prices. An El Nino pattern typically brings heavy rain to Brazil and drought to India, negatively impacting coffee crop production. The El Nino event has brought drought to Vietnam's coffee areas this year, according to an official from Vietnam's Institute of Meteorology, Hydrology, and Climate Change.
In a bearish factor, the International Coffee Organization (ICO) projected on May 3 that 2023/24 global coffee production would climb +5.8% y/y to 178 million bags due to an exceptional off-biennial crop year. ICO also projects global 2023/24 coffee consumption will rise +2.2% y/y to 177 million bags, resulting in a 1 million bag coffee surplus.
The USDA's Foreign Agriculture Service (FAS), in its biannual report released on December 21, 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. The USDA's FAS forecasts that 2023/24 ending stocks will fall by -4.0% to 26.5 million bags from 27.6 million bags in 2022-23. The USDA's FAS projects that Brazil's 2023/24 arabica production would climb +12.8% y/y to 44.9 mln bags due to higher yields and increased planted acreage. The USDA's FAS also forecasts that 2023/24 coffee production in Colombia, the world's second-largest arabica producer, will climb +7.5% y/y to 11.5 mln bags.
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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
