Coffee Prices React to Rising ICE Inventories
May arabica coffee (KCK24) this morning is down -0.30 (-0.16%), and ICE robusta coffee (RMK24) is down -20 (-0.60%).
Coffee prices plummeted due to the resurgence of ICE coffee supplies. ICE’s arabica coffee inventories ballooned to a 7-1/2 month high of 532,266 bags, while ICE’s robusta coffee inventories soared to a 7-week peak of 2,859 lots.
Reading the Rainfall Signals in Brazil
In Brazil, recent lower-than-average rainfall is propping up coffee prices. Somar Meteorologia’s Monday report revealed that Brazil’s coffee hub, Minas Gerais, received a mere 6.6 mm of rainfall in the past week, a mere 16% of the historical average. Minas Gerais contributes nearly a third of Brazil’s arabica crop.
Rabobank’s Projections Stir the Market
Rabobank’s bearish forecast of a 4.5 million bag surplus for the upcoming 2024-25 marketing year sent shockwaves through the market, marking a significant increase from the previously anticipated 500,000 bag surplus for 2023-24. However, Rabobank’s positive adjustment involved a cut in the 2023-24 production forecast by 3.9 million bags, down to 171.1 million bags, chiefly due to revised production figures for Indonesia and Honduras.
Market Rebound From Record Lows
Coffee inventories are seeing a resurgence from historic lows. ICE-monitored robusta coffee stocks hit an all-time low of 1,958 lots on February 21 but have rebounded to today’s 7-week high of 2,859 lots. Similarly, ICE-monitored arabica coffee inventories hit a 24-year nadir of 224,066 bags on November 30 but bounced back to a 7-1/2 month peak on Tuesday with 532,266 bags.
Opportunities and Challenges in Key Producers
Global market dynamics are heavily influenced by key producers like Vietnam and Brazil. Vietnam’s tightened robusta coffee supplies resulted in contract highs, while larger coffee exports from Brazil exerted downward pressure on prices. The International Coffee Organization noted a substantial increase in global coffee exports, reflecting the complex interplay of supply and demand.
The Impact of Climate Events
This year’s El Nino event promises further disruptions to coffee production, with Brazil likely to face heavy rains and India potential drought, impacting crop yields. As the El Nino patterns unfold, forecasts indicate challenges ahead for Vietnam’s coffee regions, potentially facing drought conditions by late 2023.
Forecasts and Projected Surpluses
Industry projections by the International Coffee Organization and the USDA’s Foreign Agriculture Service forecast increases in global coffee production, potentially leading to a surplus in the coming year. While production estimates rise, market watchers are eyeing shifts in arabica and robusta production, especially in key regions like Brazil and Colombia.
More Coffee News from Barchart
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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
