Coffee Prices Fall Back On Year-End Profit-Taking
Rich Asplund - Barchart - Fri Dec 31, 2021

March arabica coffee (KCH2) on Friday closed down -2.75 (-1.20%), and Mar ICE Robusta coffee (RMH22) closed down -3 (-0.13%).

Coffee prices on Friday settled moderately lower, with arabica posting a 1-1/2 week low. Year-end profit-taking is weighing on arabica prices after this year's rally of more than +76%, the biggest gain since 1994. Losses in robusta were limited by carry-over support from Wednesday when Vietnam's General Statistics Office reported Wednesday that Vietnam's Dec coffee exports fell -6.5% y/y to 130,000 MT and that total Vietnam 2021 coffee exports fell by -2.7% y/y to 1.52 MMT. Surging freight costs and the limited availability of shipping containers have reduced coffee exports from Vietnam. Vietnam is the world's top producer of robusta beans and the world's second-largest overall coffee producer.

Wednesday's projection from Ecom Trading for a global 2021/22 coffee deficit of -12.8 mln bags also supported coffee prices. Ecom Trading also projects global 2021/22 coffee production will fall -9.4% y/y to 158 mln bags.

Below-average rain in Brazil has fueled drought concerns and is bullish for coffee prices. Somar Meteorologia reported Monday that Minas Gerais, a region that accounts for about 30% of Brazil's arabica coffee crop, received 11 mm of rain or only 23% of the historical average last week.

Last Monday, arabica coffee fell to a 6-week low on concern the recent surge in Covid infections will lead to global lockdowns and travel restrictions that close coffee shops and curb coffee demand. The Netherlands imposed a nationwide lockdown until Jan 14, Israel and Japan have already closed their borders to foreign visitors, and other countries have imposed travel restrictions. Global Covid infections on Thursday rose +16% from Wednesday to a record 2.009 million. The 7-day average of new U.S. Covid infections rose to a record of 355,991 on Thursday, up +315% since Dec 1.

Coffee prices were undercut Dec 16 when Conab, Brazil's agricultural crop agency, raised its 2021 Brazil arabica coffee production estimate to 31.4 mln bags from 30.7 mln bags forecast in Sep. Conab also raised its 2021 Brazil robusta coffee production estimate to a record 16.3 mln bags from a Sep forecast of 16.1 mln bags. Conab raised its total Brazil 2021 coffee production estimate to 47.7 mln bags from 46.9 mln bags estimated in Sep.

A large long position by commodity funds in robusta coffee futures raises the risk of long liquidation pressure in robusta coffee futures. Last Friday's weekly COT data showed funds boosted their net-long robusta coffee positions in ICE futures by +4,875 to a 5-year high of 46,190 the week ending Dec 21.

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.

Also, the USDA recently cut its Colombia 2021/22 coffee production estimate to 13.8 mln bags from a prior estimate of 14.1 mln bags, citing "potentially heavy rains from La Nina." FAS also cut its Colombia 2020/21 coffee production estimate to 13.4 mln bags from 14.3 mln bags, citing "supply chain disruption and lower yields from adverse weather conditions." Last Tuesday, the CEO of Colombia's National Federation of Coffee Growers said that Colombian coffee production in 2022 may fall -7.1% y/y to 13 mln bags after heavy rain damaged crops. Colombia is the world's second-largest arabica coffee producer.

The International Coffee Organization (ICO) on Oct 7 cut its global 2020/21 coffee surplus estimate to 2.39 mln bags from 2.63 mln bags and raised its global coffee consumption estimate to 167.26 mln bags from 167.01 mln bags. Global 2020/21 coffee exports (Oct-Sep) rose +1.2% y/y to 128.931 mln bags.

ICE arabica coffee inventories on July 28 rose to a 2-year high of 2.190 mln bags, recovering further from the 21-year low of 1.096 mln bags posted in October of 2020. However, supplies have since fallen as some South American coffee producers have defaulted on contracts, spurring buyers to turn to ICE-certified coffee stockpiles to meet their needs. Arabica ICE-monitored coffee inventories fell to an 11-1/4 month low Tuesday. ICE-monitored robusta coffee inventories on May 20 climbed to a 4-year high of 16,017 lots but have since fallen to a 3-year low of 9,846 lots Friday.


Big Picture Coffee Market Factors: World coffee production in 2020/21 (Oct/Sep) will rise +0.4% y/y to 169.64 mln bags, with global consumption up +1.9% y/y at 167.26 mln bags (ICO). The world coffee surplus/deficit in 2020/21 will shrink to a surplus of +2.39 mln bags from a surplus of +4.85 mln bags in 2019/20 (ICO). Total Brazil 2020/21 coffee exports rose +13.3% y/y to a record 45.6 mln bags (CeCafe). ICO data shows global 2020/21 coffee exports (Oct-Sep) rose +1.2% y/y to 128.931 mln bags.