Coffee prices fell overnight in New York and London as markets reacted to a rally in the US dollar index and funds liquidated long positions. Demand concerns arose after US unemployment figures rose to a 1-1/2 year high, signalling a slowdown in the US concerns and sparking further speculation of an upcoming recession.
The downtrend continued over the last fortnight although prices generally traded within a USC 6/lb band over most of that time. Prices jumped midweek off the back of warnings of a probable cold front arriving in Brazil this weekend, but gains were quickly liquidated as temperature predictions proved to be less concerning than initially thought. The KCN23 arabica July contract closed at a weekly low of USC 182.40/lb overnight in New York as funds prepared for the expiration of June ’23 options tomorrow, and strength of the US dollar put a cap on early session gains.
Robusta prices continued to climb, with the RMN23 contract for July briefly touching USD $2500/t before prices fell sharply overnight in London. No clear reason was apparent for the rapid sell-off that happened late in the session so it can only be assumed that this was a rejection of the new high as funds liquidated their long positions. THE July RMN23 contract closed at USD $2,393/t.
The International Coffee Organization projects that the global 2022/23 coffee market deficit will widen to 7.3 million bags despite predictions for 2022/23 global coffee production toincrease 1.7% year-on-year to 171.27 mln bags.
ICE-monitored Arabica coffee inventories have declined over the past three months to a 5-month low of 649,830 bags.
Reduced coffee supplies from Colombia, the world's second-largest Arabica bean producer, are bullish for prices after Colombian April coffee exports fell 15% year-on-year to 719,000 bags.
Coffee prices have support as the odds of an El Nino weather event increased, which could undercut global coffee production, particularly in Brazil.
March coffee exports for Honduras rose 14% year-on-year to 1.097 million bags, which is positive for Central America's biggest exporter of Arabica beans.
ICE-monitored Robusta coffee inventories increased to a 5-month high, which is bearish for prices.
The global 2023/24 Robusta coffee market is forecasted to see a record deficit of 5.6 million bags.
Excessive long positions in Robusta coffee futures could fuel liquidation pressures after funds boosted their net-long positions to a 16-month high of 40,342 long positions.
Robusta coffee has support after Vietnam's Apr coffee exports fell 22% month-on-month and January to April exports are down 5.5% year-on-year.
The Association of Indonesian Coffee Exporters and Industries said that the country would see its 2023 coffee production fall 20% year-on-year to 9.6 million bags due to damage from excessive rainfall across its growing regions.
The information contained in this blog is intended to be general in nature and should not be taken as constituting professional financial advice. It does not take into account your objectives, financial situation or needs. We recommend seeking independent financial advice before acting on any of the information contained within.