Photo by Mike Kenneally on Unsplash
 

Short-term bullish factors propped up coffee futures of both major blends on Tuesday, February 7, but traders and importers should be aware of the transitory nature of these factors, as the overall supply-plus-stocks/demand equation suggests further prices’ downslope.

Coffee prices have been edging moderately higher lately. March Arabica coffee (KCH23) this week was up +0.71%, and Mar ICE Robusta coffee (RMH23) was up a whopping +1.91%. In contrast, on CME, May Arabica coffee KCc2 fell 1.4% to $1.7470 per pound. Dealers said a run-up that to a 3-month high of $1.84 a week ago had lost momentum and prices could fall further in the short term. Coffee’s technical indicators suggested lower price levels, but to confirm that outlook, the market needed to close below the 10-day moving average of $1.7331.

Smaller coffee exports from Colombia were considered bullish in many dedicated media articles – at least, for Arabica prices – after the Colombia Coffee Growers Federation reported that Colombia's January coffee exports fell -19% YoY to 835,000 bags. All in all, coffee exports from Colombia have been declining recently as Colombia's 2022 coffee exports fell -8% YoY to 11.1 mln bags. Important to note: Colombia is the world's second-largest producer of Arabica coffee beans.

Another supportive factor for Arabica prices was heavy rainfall in Minas Gerais, Brazil's largest Arabica growing region, which is keeping farmers out of fields and delaying the application of fertilizers and pesticides. Also, the heavy rain has led to an increase in coffee rust in some trees. Brazil’s Somar Meteorologia reported that Brazil's Minas Gerais region was soaked with 81.3 mm of rain last week, or 116% of the historical average. Important to note: Minas Gerais accounts for about 30% of Brazil's arabica crop.

Nevertheless, other resources suggest Arabica coffee prices can actually post an annual drop to the tune of 12% in 2023, with a large crop in top producer Brazil expected to generally lead to a global coffee surplus in the 2023/24 season going forward.

The Brazilian Institute of Geography and Statistics (IBGE) said on Wednesday, Brazil's 2023 coffee crop is forecast to rise by 5.7% to 55.5 million 60kg bags. Brazil’s Arabica production alternates years of high and lower volumes. The harsh frosts in 2021 changed that pattern since they hurt the 2022/23 crop, which should have been an ‘on-year’ in the cycle.
 

Summary of Outlook:

Brazil’s coffee crop in 2023/24 was forecast to climb to 67.1 million 60 kg bags, up from a median estimate of 61.5 million bags for the 2022/23 crop. Comexim estimates that Brazil’s arabica coffee production will grow 15.8% in 2023/24 versus the previous crop to 41.3 million bags, while it sees Robusta coffee output growing only 1.3% to 22.7 million bags.

Top robusta producer Vietnam was forecast to have a crop of 31 million bags in 2023/24, up from 30 million in 2022/23.

Larger crops in Brazil and Vietnam were seen leading to a global surplus of 3.35 million bags in 2023/24 compared with a deficit of 4.15 million in 2022/23, according to the poll’s median forecasts.

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