Arabica
Arabica coffee prices fell over the course of the month, with the KCU23 September contract hitting a new 5-month low overnight in New York, before recovering slightly to close at USC 162.10/lb. Prices have been heavily influenced by favourable weather conditions in Brazil’s coffee-growing regions that have eased concerns of frost damage and accelerated harvest schedules. The Minas Gerais region, which accounts for about 30% of Brazil's arabica crop, received no rain in the previous week. Reports from the country also indicate that Brazil's coffee harvest progress is ahead of last year, with 27.8% of the crop completed as of June 23rd.
Robusta
Robusta coffee prices continued to rally for the first half of the month, hitting a record high of USD 2,800/t but have retreated after experiencing long liquidation pressure following the prolonged rally. Despite the sell-off, prices are still high due to the forecast deficit for this year’s harvest, with the RMU23 contract for September closing at USD 2,568/t overnight in London.
Market Indicators
The decline in ICE-monitored inventories for both arabica and Robusta coffees provided some support for arabica prices. Arabica coffee inventories fell to a 7-month low, while Robusta coffee inventories reached a 3-1/2 month low. However, Robusta prices may face further pressure as the Commitment of Traders Report showed an increased net-long position by funds, indicating potential long liquidation.
Coffee prices received a boost when Rabobank revised its 2022/23 coffee deficit forecast to 6.4 million bags, citing a reduction in coffee production estimates for Brazil and Colombia. While Rabobank expects a balanced coffee market in 2023/24, coffee trader Volcafe forecasted a record deficit of 5.6 million bags specifically in the global Robusta coffee market for that period. The USDA Foreign Agricultural Service projected a rise in world coffee production for 2023/24, with an increase in arabica production but a decline in Robusta production. Brazilian coffee production is expected to increase significantly, while Vietnam's production may decline.
The declaration of an El Nino weather event by the U.S. Climate Prediction Centre is anticipated to have a supportive effect on coffee prices. El Nino patterns typically bring heavy rains to Brazil and drought to India, which can negatively impact coffee crops. The International Coffee Organization reported a widening deficit in the global coffee market for 2022/23, indicating a tight supply situation, as production growth slightly lagged consumption growth.
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.