Coffee Weekly Report

The coffee prices on the international exchanges ended the week lower, reacting to foreign exchange factors, while closely following the release of USDA Attaché reports and the reduction in Arabica’s certified stocks. Furthermore, the increase of 4.4% advance of the dollar in the Brazilian market, which reacted to domestic and external factors, acted bearishly for Arabica futures in the US. 

In New York (ICE), the Sept/22 contract showed a weekly decline of 375 points (-1.6%) to end the period quoted at US₵ 228.80/lb. In London (ICE Europe), Robusta’s equivalent contract ended the period at USD 2095/t, a drop of 2.0%.

For certified stocks, the reduction in the pace of declines has cooled the participants' sentiment. However, the steady decline and the scenario still unfavorable to certification should contribute to further declines that can affect prices positively. In the previous week, certified stocks of Arabica coffee had fallen by over 55,000 bags. However, last week, even with an advance of 4,875 bags on Monday (06), stocks fell by 6,177 bags. Considering the differentials' high levels at origins, there is no prospect of new certifications, which indicates that the falls may continue. 
 

WEEKLY INTRADAY (MOST ACTIVE CONTRACT) - JUNE 6 TO 10

In Brazil, Arabica coffee prices to the producer have followed a bullish trend, mainly due to the higher dollar in the Brazilian exchange market. As a result, the Cepea's Arabica indicator ended the week quoted at BRL 1308.09/bag, high by 1.1%. 

On the other hand, Cepea’s Robusta indicator ended the week almost unchanged, closing at BRL 693.51/bag. Recently, the drop in Robusta coffee prices in the domestic market was linked to the increase in availability amid the good harvest progress in the Robusta producing states. 

In the coming weeks, the market should monitor the changes in certified stocks, the release of GCA stocks on June 15, and the release of the USDA global report on June 23. In addition, any prospect of the arrival of a new cold wave could impact movements and create volatility. 

According to data released this week by the USDA, in April, US coffee imports totaled 2,380,270 bags of green coffee, an increase of 11% compared to March and 25% compared to the total imported in April 2021. Among the main suppliers, Brazil accounted for 29.8% of the month's imports, followed by Colombia (26.6%), Guatemala (8.8%), Vietnam (7.9%), Honduras (6.8%), Nicaragua (6.0%), and Mexico (5.3%).

Compared to April last year, Brazil registered an appreciation increase of 28.2%, with increases also in coffee from Colombia (+23.8%), Guatemala (+25.9%), Vietnam (+18.4%), Honduras (+2.2%), and Nicaragua (+30.2%).

Seasonality of US coffee imports 

Source: USDA. Design: StoneX.

According to the Australian agency, BOM, data from major forecast models indicate that conditions in the Pacific Ocean should return to a neutral state by winter in the southern hemisphere. However, two other models indicate a scenario of La Niña maintenance during the year's second half. 

In the latest probability forecast released by the American agency, NOAA, there was a slight increase in the probability of La Niña maintenance at the end of the year, with a weakening of the phenomenon between July and September, before returning to a more intense pattern in the rest of the second half of the year. It is important to mention that the NOAA model indicates a probability of maintenance above 50% between July and September and above 55% from October to the end of the year. 
 

EL NIÑO/LA NIÑA PROBABILITY FORECAST

Source: NOAA. Design: StoneX.

Last week, the USDA released its Attaché reports for the world's two largest producers, Brazil and Vietnam, releasing reports for 14 countries. There are still reports from 5 other countries, including Ethiopia, Honduras, China, Malaysia, and Tanzania, to be released. However, the volume produced in these countries is less expressive compared to the countries that already had their estimates released. 

For Brazil, the USDA has adjusted its estimate for 2021/22 production from 56.3 million bags to 58.1 million bags, representing an increase of 3.2%. In contrast to the USDA, the IBGE revised its 2021/22 production estimate downwards by 3.7% to 52.8 million bags. For 2022/23, the country's production should increase by 10.4% to 64.3 million bags, 41.5 million of Arabica and 22.8 million of Robusta coffee. 

Regarding Brazil's demand, the second-largest global consumer, the USDA has reduced its estimate for consumption in 2021/22 by 5.6% to 22.34 million bags. For 2022/23, the USDA sees consumption near unchanged, with a slight 0.5% increase to 22.45 million bags. For total exports, the USDA adjusted its estimates for 2021/22 with an increase of 14.4%, from 33.2 to 37.9 million bags. In 2022/23, according to the agency, Brazilian exports should increase by 2.8% to 39.04 million bags. 

For Vietnam, the USDA has adjusted its estimate for 2021/22 upwards by 1.5%, from 31.1 to 31.58 million bags. In 2022/23, production should decrease 2% to 30.93 million bags. Regarding exports, the agency's estimate for 2021/22 had a downward adjustment of 6.6% to 27 million bags; for 2022/23, exports should drop by 1.3% to 26.65 million bags. 

Considering all the data released so far, production in these countries should increase by 5.0% in 2022/23, while exports should increase by 1.2%. As already mentioned, the estimates of five producing countries are still to be released. The USDA’s final report with its estimates for the global supply and demand balance will be released on Thursday (23). Considering the data released so far, the USDA report is expected to show a large surplus in the 2022/23 supply and demand balance. 
 

Summary of estimates from USDA Attaché reports

Source: USDA. Design: StoneX.

The international market reacted to signs that global inflation should remain longer and more widespread than expected after the US Bureau of Labor Statistics (BLS) revealed a higher-than-expected Consumer Price Index (CPI) in May in the country, taking the accumulated in 12 months to 8.6%, renewing its highest level in 40 years. The result reinforces the prospects that the Federal Reserve should maintain its firm pace of raising the country's basic interest rate to control price acceleration, which contributes to raising caution in global markets and the attractiveness of the American currency.

The decision by the European Central Bank (ECB) to start a cycle of increases in its basic interest rate earlier than expected due to the record inflation levels that have plagued the economic bloc also contributes to this scenario. According to the institution's president, Christine Lagarde, the increases should start with hikes of 0.25 p.p. in July, with another increase of 0.25 p.p. to 0.50 p.p. in September. Previously, the ECB signaled that the increases would begin only at the end of the third quarter. The stronger move by central banks to control almost across-the-board price increases is likely to jeopardize growth in these economies by 2022 and contribute to a greater attraction of foreign exchange flow to dollar and euro assets.

In Brazil, the Bolsonaro administration's moves to advance measures to zero federal and state fuel taxes to try to control the country's sharp price increases contributed to driving investment away from the country and pressuring the Brazilian real's quotes during the week.

As mentioned in the FX Weekly Report, "The fact that the loss of tax collection in the order of tens of billions of Brazilian reais four months before an election cannot be ignored, which disrespects the spending cap, in a context of visible pressure on Petrobras' pricing policy, does not constitute a measure that amplifies the perceived fiscal risks for Brazil. The constant improvisations and changes in the 2022 Budget that represent an increase in spending or a reduction in tax collection may raise the perception of fiscal risk associated with Brazil, raising the demand for a risk premium by investors, which, in turn, could reduce the foreign capital flow into the country and weaken the BRL.”

It is also worth commenting that the IBGE released last week that the Broad Consumer Price Index (IPCA) registered an advance of 0.47% in May, with the accumulated over 12 months going to 11.73%. The increase was below analysts' projections and was the lowest since April last year, mainly due to the reduction in electricity prices after the change in the tariff flag from the water scarcity category to green.

For roasted and ground coffee, the IBGE registered a price increase of 1.25% for the Brazilian consumer in May. It is worth mentioning that this was the lowest monthly increase since April 2021, with the accumulated in 12 months registering its first reduction since the same month, from 67.5% last month to 67.0% in May. Nevertheless, the inflation in Brazilian coffee prices is the highest among major consumers. For example, over the last 12 months, the accumulated inflation in coffee prices for consumers was 25% in the US and 3% in the eurozone.
 

Evolution of roasted and ground coffee inflation in Brazil, the US and Europe over the last 12 months

Source: IBGE, BLS, Eurostat. Design: StoneX.

Source: ICE/NY; ICE/EU; B3; Commodity Network Trader’s Pro.