By: StoneX Intelligence Brazil, StoneX Intelligence Brazil
• Arabica prices increased by 535 points (2.5%) in NY during the week, closing at US₵ 229.45/lb.
• Cepea’s Arabica indicator increased by 0.2% to close at BRL 1,272.92/bag
• Robusta prices increased by 1.4% in London to USD 2232//t.
• Cepea’s Robusta indicator closes slightly lower by 0.7% at BRL 741.72/bag.
• Conab reduces the estimate to 50.38 million bags. ▲
• Conab's executive director admits the agency's estimates have problems
• Attention to weather continues amidst the permanence of La Niña ▲
• Arabica’s certified stocks dropped by over 60 thousand bags (11.4%). ▲
• Fed prime rate hike and dollar index hike put pressure on commodities ▼
• CRB commodity index down by 3.7% this week ▼
• Risk aversion amid an energy crisis and heightened war tensions ▼
▼ Bearish Factors ▲ Bullish Factors
Read our latest special analysis - Coffee flowering remains at risk with La Niña for the third consecutive year
Despite the unfavorable macroeconomic scenario for the commodity complex in general, and consequently, for the coffee market, future prices ended the week higher due to technical factors. They reflected the prospect of a lower-than-expected production in Brazil in 2022/23. In New York (ICE), the most active contract (Dec/22) ended the week with an increase of 535 points (2.5%), quoted at US₵ 229.45/lb.
In London (ICE Europe), reacting to the movements in the New York and the lower availability of Robusta coffee in Vietnam, the most active Robusta contract (Nov/22) ended the week with an increase of USD 30 (1.4%), quoted at USD 2232/t. The world's largest Robusta coffee producer is still in its inter-crop period, with the new harvest expected to begin in mid-November.
Weekly intraday (most active contract) – Sept 19 to 23
In Brazil, Cepea's Arabica indicator showed an advance of 1.4% until Tuesday (20) but fell back to end the week with a slight increase of 0.2%, quoted at R$ 1272.92/bag. On the other hand, Robusta coffee showed a slight increase of 0.7% to close at BRL 741.72/bag.
From the macroeconomic perspective, the strengthening of the US currency, which reflected the interest rate hike by the Federal Reserve last week, acted bearishly for commodities in general, including coffee. While the dollar index increased by 2.8% in the week, closing at 112.8 points, the highest level in 20 years, the CRB commodities index fell 3.7% to 268.5 points. Moreover, the risk-off sentiment is heightened amid fears of a European recession and heightened tensions in the Russian-Ukrainian war, with the call-up of Russian reservists and the threat of nuclear weapons in the conflict. For more details, access this week’s FX Weekly Summary.
CRB Commodities Index
The reduction in estimates for Brazilian production released by Conab contributed to the week's positive moves. The agency reduced by 6.2% its estimate for Brazilian coffee production in 2022/23, from 53.7 to 50.38 million bags. Despite the adjustment, the new estimate still represents a 5.6% increase in production compared to the previous crop (2021/22). Arabica coffee production was estimated at 32.41 million bags, while for the Robusta type, it was estimated at 17.97 million.
In a report published last week by the news agency Reuters, the executive director of Conab, Sergio de Zen, admitted that the estimates for coffee production in recent years have had problems and need improvement to reflect reality since the numbers estimated by Conab are lower than the sum of the volume consumed and the total exported. The inconsistency in Conab's estimates has already been the subject of a warning from StoneX analysts.
Range of Brazilian coffee production estimates (million bags)
On the fundamentals side, market attention is still focused on developing the early stages of the 2023/24 crop, which is in the flowering period. The weather remains a primary factor for the opening of the main flowering and satisfactory development. In recent weeks, the rainfall forecast for some regions has cooled agents' concerns. Still, this issue continues to be a risk factor since, according to NOAA forecasts, La Niña should remain until the end of the year. Besides the need to re-establish the water regime for the flower opening, good weather is necessary to guarantee the setting of the bloom and the buds. Any adversity in this period can cause damage.
The drop in Arabica's certified stocks will continue to impact coffee prices. As presented in the special report "Can certified stocks reach zero?" published in early August, market conditions are not favorable for the certification of new coffees by origins and encourage the withdrawal of coffee from certified stocks by the exchange. Last week, Arabica certified stocks fell by over 60,000 bags (11.4%) to 472,000 on Friday (23). Considering the condition of strengthened differentials and the lower availability of coffee at the origins, especially in Brazil, certified stocks should continue to follow the downward trend.
In the coming weeks, in addition to weather conditions and certified stocks, market participants are keeping an eye on September export data, which will be released starting next week. In addition, the noises on the macroeconomic front should continue to have an impact on coffee prices.
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Brazil could still deliver a record arabica crop, but the bigger question for growers is what the next season holds. Out of season flowering and the swing of El Niño have put the spotlight on the rains still to come.
Daily coffee report
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