Arabica Closes At A 10-1/4 Year High As Global Coffee Supplies Plunge.

March arabica coffee (KCH2) on Wednesday closed up +9.40 (+3.78%), and Mar ICE Robusta coffee (RMH22) closed up +24 (+1.07%).

Coffee prices on Wednesday closed sharply higher, with arabica posting a 10-1/4 year nearest-futures high and robusta posting a 3-1/2 week high.  Dwindling global coffee supplies fueled fund buying of coffee futures Wednesday after ICE-monitored arabica coffee inventories fell to a 22-year low of 1.036 mln bags.   Also, ICE-monitored robusta coffee inventories fell to a 3-1/4 year low of 9,061 lots Wednesday.

Global coffee supplies are tightening after the International Coffee Organization  (ICO) Tuesday cut its 2020/21 global coffee surplus estimate to 1.20 mln bags from a Jan estimate of 2.41 mln bags.  The ICO also reported 2021/22 global coffee exports from Oct 1-Dec 31 fell -1.6% y/y to 31.289 mln bags

Strength in the Brazilian real is also supportive for coffee prices after the real (^USDBRL) rallied to a 4-3/4 month high Wednesday against the dollar.   A stronger real discourages export selling from Brazil’s coffee producers.

The pandemic is easing in the U.S., which will lead to reduced restrictions that will be positive for social gatherings and coffee demand.  The 7-day average of new U.S. Covid infections fell to a 1-1/2 month low Tuesday of 234,941.

The Colombia National Federation of Coffee Growers reported last Friday that Colombia Jan coffee production fell -20% y/y to 868,000 bags, and Jan coffee exports fell -1% y/y to 1.063 mln bags.  Colombia is the world’s second-largest arabica coffee producer.

A bearish factor for arabica is above-average rainfall in Brazil that may boost Brazil’s coffee yields.   Somar Meteorologia reported Monday that Minas Gerais, a region that accounts for about 30% of Brazil’s arabica coffee crop, received 118.4 mm of rain or 211% of the historical average last week.

A bearish factor for robusta was last Monday’s data from Vietnam’s General Statistics Office that showed Vietnam Jan coffee exports rose +9% y/y to 175,000 MT.  Vietnam is the world’s largest robusta coffee producer.

Conab projected Jan 18 that Brazil’s 2022 coffee production would climb +16.8% y/y to 55.7 mln bags.

Arabica coffee prices are seeing support from expectations of lower global supplies due to unfavorable weather and supply chain disruptions.  Drought and recent frost events have devastated Brazil’s coffee crop this year and have curbed the growth potential for the country’s coffee crop for the next two years.  Conab reported Dec 16 that Brazil 2021 arabica coffee production fell to 31.4 mln bags, down -36% from 48.8 mln bags in 2020.  The USDA’s FAS projects that Brazil’s 2021/22 coffee exports would tumble -27% y/y to 33.2 mln bags from a record 45.67 mln bags in 2020/21 as drought and frosts curbed coffee production.

A supportive factor for robusta is the smaller robusta supply from Vietnam after Vietnam’s General Statistics Office reported last Thursday that total Vietnam 2021 coffee exports fell by -0.2% y/y to 1.61 MMT.  Surging freight costs and the limited availability of shipping containers have reduced coffee exports from Vietnam, the world’s top producer of robusta beans and the second-largest overall coffee producer.

Data from the ICO shows global 2020/21 coffee exports (Oct-Sep) rose +1.2% y/y to 128.931 mln bags