Coffee Weekly Report

Dominated by technical and macroeconomic factors (read the macro session of this report), Arabica coffee futures prices showed volatility but ended the week near unchanged. Also on technical factors, the Robusta coffee market ended the week in a slight decline. In general, the market is waiting for a new direction in terms of fundamentals while digesting and closely monitoring indicators related to coffee consumption. Some of the players were traveling for a few days of the week to attend the National Coffee Association (NCA) convention, which took place in Tampa-FL. 

In New York, the most active contract decreased only 5 points (0.03%), closing the week at US₵ 177.80/lb. For Robusta coffee, the most active contract ended the week USD 22/t (-1.0%) lower, closing at USD 2,140/t. 
 

Weekly Intraday (most active contract) - March 6 to 10

Arabica and Robusta, coffee futures prices, ended the week lower in the Brazilian domestic market. The Cepea indicator for Arabica coffee ended the week 1.9% lower, quoted at BRL 1,092.87/bag. For Robusta coffee, prices ended the week with losses of 5.9%, with the Cepea indicator closing on Friday (10) quoted at BRL 650.75/bag. 

As presented in other editions of this report, on the fundamentals side, the market's attention is focused on information that can indicate the demand for coffee in the main consumer countries. In the first two months of 2023, there was a strong reduction in Brazilian coffee exports, which indicates a lower receipt of coffee in consumer countries, especially in the US. 

It is important to monitor coffee stocks in the US, the world's largest consumer of coffee, to understand this scenario. Therefore, this week, attention will be on GCA stocks for February, which will be released on 03/15. Over the past five years, GCA stocks have fallen by an average of 1% between January and February. In addition, stocks averaged 6.13 million bags in the period. 

According to the Brazilian Coffee Exporters Council (Cecafé), the country exported 2.39 million bags of coffee in February, representing a drop of 33.3% compared to February 2022. Of these, Brazil exported 2.11 million bags of green coffee, a drop of 35.8%. Robusta coffee exports totaled 93.3 thousand bags (-42%) of Arabica coffee 2.03 million bags (-35.5%). Considering revenue, Brazil exported USD 505.8 million (BRL 2.6 billion), a decrease of 38.5%, at an average price of USD 211.13/bag. 

Seasonality of Brazilian coffee exports

Source: Cecafé. Design: StoneX. 

The sharp decline in Brazilian exports is associated with lower coffee availability due to production below potential in 2022, possibly weakened demand, and high differentials, discouraging Brazilian coffee exports.  

US imports fell by 14.5% in January

According to data released by the USDA, the US imported 1.74 million bags of coffee in January, representing a drop of 14.5% compared to January of the previous year and 2.3% compared to the previous month. The volume imported was 7.7% lower than the average for January over the past three years and 18% lower than in January 2019. The sharp drop in US coffee imports comes in line with the performance of Brazilian exports in January, which fell more than 18 percent in the month. 

Evolution of monthly coffee imports in the US

Source: USDA. Design: StoneX. 

While imports fell by 2.3%, or 41.7 thousand bags, compared to the previous month, coffee stocks at American ports, reported by GCA, decreased by 1.77%, or 112.9 thousand bags. Considering the previous month's stock, the volume imported and the remaining stocks at the end of the month, there was an internalization, that is, coffee that left the port in the US of 1.85 million bags. The volume represents a recovery of 3.3% compared to the previous month, but still 10.6% lower than that observed in January 2022 and 3.8% below the average of the last three years. Compared to January 2019 and 2020, the pre-pandemic period, the volume is 16% and 10% lower, respectively. Importantly, despite the drop in GCA stocks in January this year, the observed volume is still 8% higher than in January 2022.

Traders were operating under increased caution following Fed Chairman Jerome Powell's tougher line on inflation in his testimony to the US Senate. Powell stressed that the path to controlling the acceleration of prices is tortuous but that the Fed is prepared to accelerate the pace of interest rate adjustments if activity and price data continue to show a very heated economy. In addition, Powell said that the several higher-than-expected results in January indicate that the interest rate ceiling could be higher than expected. Contributing to the view presented by the chairman was the result of the February Employment Situation Report of the United States, released on Friday (10), which showed a net creation of 311 thousand new jobs, against an expectation of 223 thousand. 

However, at the end of the week, there was a flight from the dollar to other safe-haven assets, a trend that extends into this Monday, as risk aversion among agents rises following the news of the bankruptcy of US bank Silicon Valley Bank (SBV). As commented in StoneX's FX Weekly report, tighter financial conditions, higher interest rates, and falling demand for credit eventually brought financial difficulties to the institution. Investors fear that other banks may be in similar trouble and that this scenario will reduce the credibility of financial institutions and cause an unjustified increase in withdrawals – with the potential to cause a new crisis for an institution that was not exposed to the original problems.

In this scenario, other advanced currencies considered safe, such as the pound, the euro and the Japanese yen, have registered a significant appreciation against the US currency in the last three sessions. In the opposite direction, the Brazilian real, on Monday (13), operates in its third consecutive trading session of high, heading to end at its highest closing level in just over a month. It is worth remembering that both the dollar's rise against the real and the atmosphere of greater apprehension in the markets have the potential to affect coffee quotes this week negatively.
 

The euro (EUR), pound (GBP) and real (BRL) against the dollar

Source: CommodityNetwork Traders ' Pro. Design: StoneX.

The scenario also significantly changes the bets for the Fed's next monetary policy decision on March 22. If last week the bets were divided between an increase of 0.25 p.p. and 0.50 p.p. in the American interest rate, today, 80% of the agents believe in an increase of 0.25 p.p., while the others bet that it will remain unchanged.

In this sense, on this week's agenda, the release of the US Consumer Price Index (CPI) and Producer Price Index (PPI) on Tuesday (14) and Wednesday (15), respectively, should be key indicators for market sentiment in the coming days. Additionally, on Thursday (16), there will be the European Central Bank's (ECB) monetary policy decision, and on Friday (17), the release of the eurozone CPI, which the markets will closely watch.

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