Coffee Prices Suddenly Boosted by Downbeat Forecasts

May Arabica Coffee rose 3.09% and May ICE (NYSE:ICE) ICE) Robusta coffee (RMK23) rose 2.17% on Wednesday, April 5. ICE Arabica stocks tightened to support prices after ICE monitored them on Tuesday, falling to a 3.5-month low of 732,533 bags. Worldwide coffee prices are supported by fewer coffee exports globally. 

Indeed, shortly after cocoa futures staged their own price rally, coffee prices rose sharply as well, with Arabica hitting a 1-week high and Robusta climbing to the next futures high in 7.5 months. Falling global coffee exports point to tighter supply, with commodity funds buying the closer coffee futures after the International Coffee Organization (ICO) reported that global coffee exports fell 8.7% YoY from October to February to $48.66 million.

Thus, Robusta gained support amid global supply concerns after coffee retailer Volcafe predicted the global Robusta coffee market would be short of a record 5.6 million bags in 2023/24 session. Elsewhere, coffee production in Indonesia, the world's third-largest Robusta coffee producer, will fall 20% YoY to 9.6 million bags in 2023 due to damage caused by excessive rainfall in growing areas, the Indonesian, the world's third-largest Robusta producer, Coffee Exporters and Industry Association reported. 

Let’s remind, that the USDA reduced its forecast of worldwide coffee production for 2022–2023 from 175 million bags in June to 172.8 million bags in its biannual report, which was published on December 23, 2022. In addition, the USDA decreased its estimate of the world's coffee ending stocks for 2022–2023 from 34.7 million bags in June to 34.1 million bags, showing a reduction of 1.7%. Also, on November 22, the USDA's Foreign Agricultural Service (FAS) reduced its forecast for Brazil's coffee production in 2022–2023 by 2.6% to 62.6 million bags from an earlier estimate of 64.3 million bags. Brazil's biannual coffee crop was projected to yield more this year, but the drought drastically downplayed such hopeful expectations.

More importantly, some institutional commodity research contributors downgraded their estimates for Brazil's Arabica coffee production to 42.7 million bags from 44 million bags back in February, citing heavy rains in southern Minas Gerais that led to the spread of disease. Another positive for Arabica prices is the National Federation of Coffee Growers' forecast published on March 3, saying that first-year coffee production in Colombia, the world's second-largest producer of Arabica coffee, will drop 4.8% YoY by mid-2023 to 5 million coffee bags as excess rain and cloudy weather affect yields.

The second-largest producer of coffee in Central America, Guatemala, revealed that its exports of 172,439 bags declined 8% YoY in January. The Colombia Coffee Producers Organization reported Colombia's February coffee exports decreased 6% YoY to 928,000 bags on March 13. Brazil's February green coffee exports slumped -35.8%YoY to 2.11 million bags. In contrast, representing a rare bright spot, exports of Honduran Mar coffee increased by 14% YoY to 1.097 million bags. The largest exporter of Arabica beans from Central America is exactly Honduras.

All in all, the ICO predicted on March 10 that the worldwide 2022–2023 coffee market will experience a shortfall for a second straight year, following the 4–5 million bag deficit in 2021/22 brought on by problems with the arabica crop. Summary of Outlook:

Since both global and local coffee authorities, namely, the International Coffee Organization (ICO), on one hand, and the Colombia Coffee Growers Federation and the Association of Indonesian Coffee Exporters and Industries – are pointing to shortfalls in coffee supplies – coffee prices will likely lose their fragile support of the recent months, and resume their upward pressure. Taking account, that this may become the second consecutive year of coffee supplies’ deficiency – the prices, all other things being equal – are capable of staging a full-fledged rally soon. Trying to define the target, we may offer an idea that it will be proportionate to 6-7% overall export drop, plus benchmark inflation rate estimate – which will likely arrive at 13-14% appreciation, all other things being equal.