Coffee Gives Up Early Gains and Closes Lower on Long Liquidation Pressures

Rich Asplund Barchart Mon Sep 16, 1:40PM CDT
Coffee - Beans and filled cups of espresso on wooden board by StockSnap via Pixabay

December arabica coffee (KCZ24) Monday closed down -0.90 (-0.35%), and November ICE robusta coffee (RMX24) closed down -21 (-0.40%).

Coffee prices Monday gave up an early advance and posted moderate losses.  Early Monday, Dec arabica and Nov robusta posted contract highs, while nearest-futures (U24) robusta posted a new all-time high.  Coffee prices have rallied sharply over the past week as adverse global weather events threaten coffee production.   Coffee prices later on Monday ran into some long liquidation pressure after the recent sharp gains.

Brazil has been facing the driest weather since 1981, according to the natural disaster monitoring center Cemaden.   Rainfall in Brazil has consistently been below normal since April, damaging coffee trees during the all-important flowering stage and lowering prospects for Brazil's 2025/26 arabica coffee crop.  Somar Meteorologia reported Monday that Brazil's Minas Gerais region received no rain over the past week.  Minas Gerais accounts for about 30% of Brazil's arabica crop.  Also, robusta coffee has support after typhoon Yagi struck Vietnam last Monday, which may have damaged the country's robusta coffee fields.

Strength in the Brazilian real (^USDBRL) supports arabica coffee as the real rallied to a 2-1/2 week high against the dollar Monday, discouraging export selling from Brazil's coffee producers.

Robusta coffee prices are underpinned by fears that excessive dryness in Vietnam will damage coffee crops and curb future global robusta production.  Vietnam's agriculture department said on March 26 that Vietnam's coffee production in the 2023/24 crop year dropped by -20% to 1.472 MMT, the smallest crop in four years, due to drought.  The USDA FAS on May 31 projected that Vietnam's robusta coffee production in the new marketing year of 2024/25 will dip slightly to 27.9 million bags from 28 million bags in the 2023/24 season.  Last Wednesday, the General Department of Vietnam Customs reported that Vietnam's August coffee exports fell -9.9% y/y to 76,214 MT and that Vietnam's Jan-Aug coffee exports fell -12.1% y/y to 1.06 MMT.

Last Tuesday, Cecafe reported that Brazil's Aug green coffee exports rose +1.4% y/y to 3.41 million bags.  The rise in Brazil's green coffee exports was consistent with other recent news showing higher exports.  The Brazilian Trade Ministry reported on August 7 that Brazil's July coffee exports rose +44% y/y to 202,000 MT.  Also, Cecafe reported on July 11 that Brazil's 2023/24 coffee exports rose +33% y/y to a record 47.3 million bags.  On a global basis, the International Coffee Organization (ICO) reported on September 6 that global coffee exports rose +12.2% y/y in July to 11.29 million bags and that global exports during Oct-July rose +10.5% y/y to 115.01 million bags.

A rebound in ICE coffee inventories from historically low levels is negative for prices.  Last Thursday, ICE-monitored arabica coffee inventories rose to a 1-1/2 year high of 858,474 bags, up from the 24-year low of 224,066 bags posted in November 2023.  Also, ICE-monitored robusta coffee inventories on July 25 rose to a 1-year high of 6,521 lots, up from the record low of 1,958 lots posted in February 2024.

In a bearish factor, the International Coffee Organization (ICO) said on May 3 that 2023/24 global coffee production climbed +5.8% y/y to 178 million bags due to an exceptional off-biennial crop year.  ICO also said global 2023/24 coffee consumption rose +2.2% y/y to 177 million bags, resulting in a 1 million bag coffee surplus.

The USDA's bi-annual report on June 20 was bearish for coffee prices.  The USDA's Foreign Agriculture Service (FAS) projected that world coffee production in 2024/25 will increase +4.2% y/y to 176.235 million bags, with a +4.4% increase in arabica production to 99.855 million bags and a +3.9% increase in robusta production to 76.38 million bags.  The USDA's FAS forecasts that 2024/25 ending stocks will climb by +7.7% to 25.78 million bags from 23.93 million bags in 2023/24.  The USDA's FAS projects that Brazil's 2024/25 arabica production would climb +7.3% y/y to 48.2 mln bags due to higher yields and increased planted acreage.  The USDA's FAS also forecasts that 2024/54 coffee production in Colombia, the world's second-largest arabica producer, will climb +1.6% y/y to 12.4 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.