Coffee Weekly Report

Arabica coffee futures started the week under pressure, reacting to a 2.7% rise in the USDBRL on Monday. However, coffee futures prices rallied for the following three days while the Brazilian currency modestly recovered. On Friday, the 2% appreciation of the American currency against the Brazilian real put pressure on prices in New York as they closed the week lower. 

On the ICE in New York, the Sept/22 contract showed a weekly retreat of 140 points (0.6%) to end the period quoted at US₵ 227.40/lb. In London (ICE Europe), Robusta’s equivalent contract ended the period at USD 2079/t, a drop of 0.8%.
 

WEEKLY INTRADAY (MOST ACTIVE CONTRACT) - JUNE 13 to 17

With the increase of the USDBRL, the Arabica prices paid to the Brazilian producer ended the week higher. As a result, the Cepea's Arabica indicator ended the week quoted at BRL 1326.24/bag, high by 1.4%. 

On the other hand, Cepea’s Robusta indicator ended the week almost unchanged, closing at BRL 691.43/bag. Recently, the Robusta coffee prices in the domestic market have been under pressure amid the advancing harvest of the type in Brazil. 

During the week, the market will keep an eye on the changes in certified stocks, which have no prospect of recovery, as already presented in other editions of this report. Furthermore, attention will be on the release of the USDA's global coffee report, which will bring the agency's estimates for the global coffee balance in 2022/23. As discussed later, most of the USDA's attaché reports have already been released and indicate a 7 million bag increase in world production. Furthermore, any prospect of the arrival of a new cold wave could impact movements and generate volatility. 

On Wednesday (22), CoffeeNetwork, a StoneX group company, will release its perspective on the global supply and demand (S&D) balance for the 2022/23 coffee crop. This report will be available for clients on StoneX's market intelligence portal. 

The Green Coffee Association (GCA) reported last week that stocks at US ports rose by 97,125 in May to reach 6 million bags, the highest level since September last year. The rise represents a positive change of 1.6% over the previous month, lower than the average change of 3.0% in previous years, and a growth of 3.2% over May 2021. Despite the increase, the current level is 9.7% below the last five-year average for the month, which was 6.6 million bags.

Seasonality of coffee stocks at US ports - GCA (million bags)

Source: GCA.

Last week, the USDA released its attaché report for Tanzania only, revising the country's production from 1.4 to 1.2 million bags in 2021/22. In addition, the USDA projected a 4.2% drop in the country's production in 2022/23. Regarding exports, the USDA has adjusted downward its exports in 2021/22 from 1.6 to 1.2 million bags and estimated exports in 2022/23 at 1.1 million bags, representing a drop of 8.6%. 

Attaché reports have been released for 15 producing countries, including major countries such as Brazil, Colombia, and Vietnam. Four more countries are still to be reported: Ethiopia, Honduras, China, and Malaysia. In addition, on Thursday (23), the USDA will release its global coffee report, which will bring its expectations for the global supply and demand balance in 2022/23. The attaché reports for the remaining countries should be released in the next few days, but they may be released together with the global report, as has happened in previous years. 

For reports released so far, considering the partial sum of estimates, the USDA has adjusted its estimates for production in 2021/22 by 0.7%, from 142.2 million to 143.1 million bags. Likewise, the adjustment for exports in 2021/22 shows a 0.9% increase from 113.4 million to 114.4 million bags. 

Regarding production for 2022/23, partial figures indicate a rise of 7 million bags (4.9%) to 150.1 million bags. For exports, partial data indicate an increase of 1.3 million bags (1.1%) in 2022/23 to 115.7 million bags. 
 

Summary of estimates from USDA Attaché reports

Source: USDA. Design: StoneX.

The FOMC also released the quarterly update of its economic projections for the United States. Highlights include the revision in the growth rate from 2.8% to 1.7% in 2022 and from 2.2% to 1.7% in 2023, the revision in the unemployment rate from 3.5% to 3.7% this year and from 3.5% to 3.9% next year, and for the PCE inflation index from 4.3% to 5.2% and from 2.7% to 2.6% in 2022 and 2023, respectively.

The acceleration of consumer prices in the United States has been one of the main elements of risk aversion in global markets. In recent months, indicators have shown that inflation in the country is no longer only related to a supply shock caused by the war between Russia and Ukraine and logistics chains bottlenecks but is widespread among other groups of products and services, which makes it more difficult to stipulate precisely which measures will actually manage to control it. In this scenario, the great fear of the agents is that the necessary measures adopted by the American central bank to control the acceleration of prices could provoke an economic recession.

In Brazil, the decision of the Monetary Policy Committee (Copom) of the Central Bank occurred as expected, with an increase of 50 basis points, taking the basic interest rate (Selic) to 13.25% per year. The Committee also signaled that in its next meeting in August, it would raise the Selic rate another 50 basis points, highlighting as the main risk factors "a greater persistence of global inflationary pressures and uncertainty about the future of the country's fiscal framework.

The Central Bank also revised its projections for the National Broad Consumer Price Index (IPCA) from 7.3% to 8.8% by the end of the year. Due to the interruption of the Focus Bulletin's weekly releases due to the strike of the institution's servers, the Central Bank's projection for inflation should be an important gauge of expectations for market participants.

This week, agents in Brazil should follow the release of the minutes of last week's Copom meeting in search of new information about the Committee's expectations for the coming months and the release of the IPCA-15 for June by the IBGE on Friday (24). In the foreign scenario, the highlight is Markit's release of the June PMIs, indicators that the market should pay more attention to in the coming months due to fears of a slowdown in economic activity. Furthermore, investors should also reflect on Fed Chairman Jerome Powell's testimony to the US Congress on Wednesday (22) and Thursday (23) to talk about the state of the economy and the central bank's actions to ensure price stability and economic growth in the country.

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