Rich Asplund - Barchart - Mon Aug 24, 2:00PM CDT
Dec arabica coffee (KCZ20) on Monday closed up +0.35 (+0.29%), and Jan ICE Robusta coffee (RMF21) closed up +2 (+0.14%).

Coffee prices on Monday settled higher, with Jan robusta posting a 7-month high. Coffee prices are climbing on falling inventories. ICE-monitored arabica coffee inventories on Monday dropped to a 3-1/2 year low of 1.318 mln bags. ICE-monitored robusta coffee inventories on Monday fell to a 20-month low of 10,908 lots.

Gains in arabica were limited Monday by beneficial rain in Brazil that may trigger tree flowerings. Somar Meteorologia reported Monday that Minas Gerais, Brazil's biggest arabica-growing area, received 15.6 mm of rain in the past week, or 168% of the historical average.

Brazil's regional cooperative company, Cooxupe, reported last Wednesday that its group's coffee harvest as of Aug 14 was 84% complete, which matches the 5-year average but is slower than last year's pace of 94%.

Robusta coffee is seeing support from tighter supplies after the General Department of Vietnam Customs reported Aug 12 that Vietnam's July coffee exports fell -22% y/y to 141,282 MT and that cumulative Vietnam Jan-Jul coffee exports fell -1.01% y/y to 1.05 MMT. The USDA's Foreign Agricultural Service (FAS) on June 10 forecasted that Vietnam's 2020/21 coffee production would fall -3.5% y/y to 30.2 mln bags. Vietnam is the world's largest producer of robusta beans.

Coffee prices are seeing support from ICO projections for a coffee supply deficit for 2019/20. The International Coffee Organization (ICO) on Aug 5 said it sees a 2019/20 global coffee deficit of -486,000 bags compared with a June projection for a surplus of +1.85 million bags. ICO also reported that global Oct-Jun coffee exports fell -5.1% y/y to 95.36 mln bags.

Demand optimism is another bullish factor for coffee. Keurig Dr Pepper said in its Q3 earnings report on July 30 that "significant growth in brewers and K-cup pods for at-home consumption more than offset a significant drop in the office coffee and hospitality businesses." The CEO of Starbucks, on July 29, said in a conference call that the company's U.S. comparable-store sales turned positive in July. Also, Fitch Solutions, on July 24, said consumer spending on coffee globally should rise +5.8% y/y in 2020, well above the 2015-2019 average of +1% y/y, as consumers will purchase more coffee for home consumption during the work-from-home pandemic. Still, there is concern about pandemic-related weakness in coffee demand.

A potential bearish factor for coffee in an extremely large long position by commodity funds, which increases the threat of long liquidation pressure. Last Friday's weekly Commitment of Traders (COT) report showed that funds boosted their net-long positions in ICE arabica coffee futures by 4,005 contracts to a 7-month high of 27,782 contracts in the week ended Aug 18. Last Friday's COT report also showed that funds boosted their net-long positions in ICE robusta coffee futures by 2,068 contracts to a 3-year high of 5,535 contracts in the week ended Aug 18.