By: StoneX Intelligence Brazil, StoneX Intelligence Brazil
• Arabica prices dropped by 900 points (5.4%) in NY, ending the week at US₵ 158.30/lb.
• Robusta coffee prices advanced USD 26/t in London (1.4%) to USD 1825/ton.
• Cepea's Arabica indicator ended the week down by 1.4%, quoted at BRL 1023.47/bag.
• According to Cepea, Robusta prices dropped by only 0.7% in the week.
• A favorable rainfall regime feeds optimism with the 2023 crop.▼
• The main producing regions in Brazil received accumulated rainfall volumes of up to 550 mm in the last 60 days.▼
• ADECAFEH projects a 10% increase in Honduran coffee exports.▼
• According to the FNC, Colombian coffee production fell by 11,9% in 2022.▲
• USDA: US coffee imports fell by 23.7% in November.▼
• In a week of great volatility in the foreign exchange market, USDBRL ends lower.▲
• Easing fiscal worries eased USDBRL's upward pressure ▲
• Bets of smaller adjustments in the US interest rate favor commodities.▲
• Inflation reports in Brazil and the US are this week's highlights.
▼ Bearish factors ▲ Bullish factors
Arabica futures prices started the first week of the year lower, mainly pressured by favorable weather in Brazil, which supports optimism about productivity and coffee production in 2023. On the other hand, Robusta coffee futures prices showed a recovery in the week. In New York, the most active contract showed a decrease of 900 points (5.4%), closing last Friday, quoted at US₵ 158.30/lb. In London, the most active contract advanced USD 26/t (1,4%), closing the week at USD 1825/t.
Weekly intraday (most active contract) - Jan 02 to 06
In Brazil, Arabica and Robusta coffee prices ended the week lower, following the movement of futures in New York, but in a less intense way. The Cepea's Arabica indicator ended Friday (06) at BRL 1023,47/bag, representing a drop of 1.4% compared to December 29. The drop in Robusta prices was much less intense, representing a 0.7% decline in Cepea's indicator, which closed Friday's session (06) at BRL 693.08/bag.
Part of the optimism regarding Brazilian production in 2023 has been fueled by the weather in Brazil, which has shown favorable conditions for the 2023/24 crop development. According to the latest Precipitation Forecast report from StoneX, the main producing regions received accumulated rainfall volumes of up to 550 mm in the last 60 days. Also according to the report, several producing regions in the country should receive accumulations of up to 250 mm in the next 14 days.
Export data in producing countries are also on the agents' radar. According to data from the Honduran National Coffee Institute (IHCAFE), the country exported 252.7 thousand bags of coffee in December 2022, representing a drop of 14.8% compared to December 2021. As a result, the country's accumulated exports in the 2022/23 crop year, which began in October, reached 345.5 thousand bags, a volume 3.3% lower than that observed in the same period of the previous crop year. However, the Association of Coffee Exporters of Honduras (ADECAFEH) projects a 10% increase in Honduran exports in the current crop year (Oct/22-Sep/23) to 5.1 million bags, signaling a prospect of recovery of production in the country, one of those negatively impacted by the effects of La Niña.
According to the Colombian Coffee Growers Federation (FNC), coffee production in the country totaled 11.08 million bags in the 2022 calendar year, representing a reduction of 11.9% compared to production in 2021. However, the volume is still 20% lower than production in the last five years, which was 13.79 million bags. The sharp reduction in production in the country is due to the impacts of La Niña on the country's production, which has faced weather adversities and excess rainfall.
Evolution of Colombian coffee production (million bags)
On the consumer side, recently, the USDA released data on coffee imports in the US in November, which totaled 1.53 million bags, representing a reduction of 23.7% compared to the previous month, but an increase of 2,2% compared to November 2021. However, the volume imported is 4.1% lower than the average import of the last three years. When we analyze the accumulated of the year, the US imported 21.9 million bags between January and November 2022, a volume 3.6% higher than that observed in the same period of 2021. However, the accumulated imports are still lower than observed in 2019, the pre-pandemic year. The accumulated imports in 2022 are still 4.3% lower than the same interval in 2019.
Seasonality of coffee imports in the US (million bags)
After sharp oscillations, the USDBRL ended last Friday (6), quoted at BRL 5.236, a decline of 0.8% in the first week of the year. Concerns about fiscal risks in the country were the main drivers of volatility in the foreign exchange market, which reached a weekly high of 3.7% when it touched BRL 5.478 at Tuesday's close before retreating for the rest of the week. On the other hand, the dollar index posted a change of +0.4%, closing the week quoted at 103.7 points.
The domestic scenario dominated investors' moods and decisions at the beginning of the year. The beginning of the week saw strong risk aversion and a rise in the dollar amid uncertainties about the fiscal responsibility of the new government. On Tuesday (3), the agents' apprehension rose after the Minister of Finance, Fernando Haddad, declared that his initial plan is to begin discussions on the new fiscal framework and a possible tax reform only from April. However, that fear eased on Thursday and Friday, as officials in the new administration demonstrated efforts to reduce noise about the new administration's fiscal policy by assuring that the new administration will not promote sweeping changes or reforms. The change in the government's tone again attracted greater foreign exchange flow toward the Brazilian economy, strengthening the BRL.
Abroad, the release of weaker economic indicators and the December US labor market data acted to modify analysts' projections for the monetary policy promoted by the Federal Reserve. Despite being slightly higher than expected, new job creation in December showed that the indicator continues to lose pace month by month, accompanied by a smaller increase in average labor remuneration in the last 12 months. Thus, bets have grown that the Fed may make lighter adjustments to the US interest rate and reach a lower final level than previously forecast. The prospect of smaller adjustments in US interest rates tends to increase the appetite for riskier assets, such as commodities and currencies of emerging countries, a trend that has been materializing on Monday (9).
On this week's agenda, the release of the National broad Consumer Price Index (IPCA) for December on Tuesday (10) stands out in Brazil, with the median of projections pointing out that the accumulated of the year will end at 5.59%. If the result is higher than expected, the forecasts for inflation in 2023 could be negatively impacted, raising risk aversion in the country since there are still doubts about the effect of a probable higher public debt on the acceleration of consumer prices. In addition, the December US Consumer Price Index (CPI) stands out and will be released on Thursday (12).
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