September arabica coffee (KCU22) on Tuesday closed down -7.90 (-3.70%), and Sep ICE Robusta coffee (RMU22) closed down -12 (-0.61%).
Coffee prices Tuesday fell sharply for a second day, with arabica posting a 2-month low. Weakness in the Brazilian real (^USDBRL) undercut arabica prices, with the real Tuesday falling -0.83% and hovering just above last Wednesday's 5-1/2 month low. The weaker Brazilian real encourages export selling by Brazil's coffee producers.
Brazilian coffee farmers harvested 48% of this year's coffee crop as of July 5, well behind the 5-year average of 58%.
Signs of increased global coffee supplies are bearish for prices after the International Coffee Organization (ICO) reported last Tuesday that global 2022 coffee exports for Oct-May were up +1.3% y/y at 88.506 mln bags. Also, the Colombia Coffee Growers Federation reported last Wednesday that Colombia's June coffee exports rose +6% y/y to 939,000 bags. Colombia is the world's second-largest producer of arabica beans.
Vietnam's General Department of Customs reported in late June that Vietnam's June coffee exports were up +13.3% y/y at 145,000 MT, and Jan-Jun coffee exports rose +21.7% y/y to 1.027 MMT. Vietnam is the world's biggest producer of robusta coffee beans. The USDA June 7 revised its 2021-22 coffee production estimate for Vietnam upward to 31.58 million bags from 31.1 million bags but said 2022/23 production would fall by -2.2% y/y to 30.9 million bags.
Coffee prices are seeing some underlying support from concern that excessive dryness in Brazil may lead to lower coffee yields. Somar Meteorologia reported Monday that Minas Gerais received no rain last week, or 0% of the historical average. That was the second straight week with no rain. Minas Gerais accounts for about 30% of Brazil's arabica crop.
A bullish factor for arabica coffee is shrinking ICE coffee inventories. ICE monitored arabica coffee inventories dropped to a new 22-year low of 782,726 bags Monday.
In a bearish factor, the USDA, in its bi-annual report released on June 23, projected that 2022/23 global coffee production would climb +4.7% y/y to 174.95 mln bags, primarily due to Brazil's arabica crop entering the on-year of the biennial production cycle. The USDA also projects that 2022/23 global coffee ending stocks will climb +6.3% y/y to 34.704 mln bags.
The International Coffee Organization (ICO) recently cut its global 2020/21 supply estimate to a deficit of -3.13 mln bags from a previous estimate of a +1.2 mln bag surplus. In addition, ICO lowered its global 2020/21 coffee production estimate to 167.17 mln bags from 168.88 mln bags and raised its 2020/21 global coffee consumption estimate to 170.30 mln bags from 167.68 mln bags.
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