By: StoneX Intelligence Brazil, StoneX Intelligence Brazil
• Arabica prices dropped by 1215 points (7.07%) in NY since November 04, ending Tuesday (15), quoted at US₵ 159.50/lb.
• Cepea’s Arabica indicator dropped by 0.5%, quoted at BRL 956.77/bag.
• Robusta prices dropped by 3.6% in London to USD 1802/t.
• Cepea’s Robusta indicator closed down by 1.3% at BRL 550.67/bag.
• The prospect of a larger crop in 2023 weighed on prices▼
• Coffee-producing regions in Brazil received significant amounts of rain and forecasts indicate accumulations of up to 200 mm ▼
• Certified stocks increased by more than 80,000 bags (21%) since November 04▼
• Stocks pending classification advanced by 250% to nearly 600,000 bags ▼
• NOAA: 76% probability of La Niña until early next year ▲
• Brazilian exports fell by 2.8% in October ▲
• Volume exported in Vietnam in October dropped by 13.7%, but the total year-to-date shows an increase of 10.8%
• Coffee stocks in American ports (GCA) dropped by 0.9% in October
▼ Bearish Factors ▲ Bullish Factors
After closing higher two weeks ago, coffee futures prices fell again last week and in the first few sessions of this week. On the fundamentals side, coffee futures prices have been pressured amid the prospect of a large crop in 2023/24 amid possibly weakened demand due to macroeconomic issues such as inflation and lower global economic growth or possible recession - for more details on the current macroeconomic and exchange rate scenario access: FX Weekly Summary. The recent increase in certified stocks has also contributed to the current trend.
In New York, the most active contract (Mar/23) ended yesterday's session (15), quoted at US₵159.50/lb, a drop of 1215 points (7.07%) compared to Friday's close (04). In London, the most active contract (Jan/23) closed at USD 1802/t, down by 3.6% over the same period.
In Brazil, the USDBRL appreciation by 5.06% between Friday (04) and Monday (14) contributed to mitigating the drop in coffee future prices abroad. Cepea’s Arabica indicator posted a drop of 0.5%, ending Monday (14) at BRL 956.77/bag. The Robusta coffee showed a decline of 1.3%, closing Monday (14), quoted at BRL 550.67/bag.
As mentioned, the prospect of a large crop in 2023 has been one of the major factors behind the bearish trend observed in recent weeks, as it reflects the prospect of ample supply amid a possibly weakened demand. The return and continuation of rainfall throughout the coffee belt endorse this sentiment. StoneX's precipitation report, which uses data from the US NOAA, indicates that all coffee-producing regions in Brazil have received volumes between 125 and 280 mm over the past 60 days. In addition, the model predicts accumulated volumes of up to 200 mm for the next 15 days - access here the latest report with historical and forecast precipitation in the producing regions (link).
Rainfall anomaly in Brazil in the last 60 days compared to the average of the last 20 years
After reaching the lowest volume in over 20 years, certified stocks have increased again in recent weeks. Data released by ICE show that from November 4 to yesterday (15), certified stocks of Arabica coffee have increased by over 80,000 bags (21%), totaling 468,291 bags. Furthermore, there has been an increase of almost 250% in stocks pending classification to almost 600,000 bags, which may be included in certified stocks if they pass the classification process. However, as discussed in other reports, differentials and freight conditions still need to be at levels that favor the certification process by origin. Therefore, it is possible that this coffee is being reclassified.
In the coming weeks, the market will continue to closely monitor weather conditions in Brazil and producing countries as despite favorable conditions in Brazil, the US agency NOAA continues to indicate the permanence of La Niña until early next year, with a 76% probability of the phenomenon continuing into the December/January/February quarter. In addition, the market will be focused on the release of the USDA report in the coming weeks, which is expected for December and should adjust the organization's perspectives compared to Brazilian production and the supply and demand balance in the world in 2022/23.
El Niño/La Niña probability forecast
According to data released by Cecafé last week, Brazilian exports of green coffee totaled 3.177 million bags, 2.8% less than in October of last year. The decrease in exports was mainly due to the drop of more than 63% in Robusta exports, which totaled 110.7 thousand bags. Exports of Brazilian Robusta had a significant decrease due to the strong demand by the industry in the domestic market. On the other hand, Arabica exports totaled 3.066 million bags, representing an increase of 3.3%.
Brazilian coffee exports (million bags)
Marcos Matos, Cecafé's Executive Director, commented at an event in Costa Rica that Brazilian exports are still being impacted by logistical problems, mainly due to the lack of containers. In addition, Matos attributed the strong decrease in Robusta coffee exports to the strong demand from the industry in Brazil. According to him, some industries have been using up to 85% Robusta coffee in the blend.
According to Vietnam's customs agency, the country exported 1.33 million bags in October, a volume 13.7% lower than in October 2021. However, cumulative exports in 2022 total 23.33 million bags, representing an increase of 10.8% compared to last year. Despite the decline in October, Vietnam has been the main supplier of the Robusta type to the world, while Brazilian exports of this type fell amid strong demand in the domestic market. It is important to mention that the Asian country was in an inter-crop period, with the harvest beginning in November and prospects for advances in the coming weeks.
Vietnamese coffee exports (million bags)
According to the Green Coffee Association, coffee stocks at US ports totaled 6,320,157 bags on 10/31, representing a decrease of 58,321 (0.9%) compared to September. Furthermore, stocks were 2.8% below the average of the last five years. Despite the decline, stocks in October were 5.8% higher than in the same month last year. Since the beginning of the year, GCA stocks have increased by 8.3%.
Coffee stocks at US ports – GCA (million bags)
GCA stocks can be considered an indicator of the pace of consumption in the US but can only be analyzed considering imports of coffee into the country. Data for October are not yet available, but the USDA report for September showed that the country imported 1.784 million bags that month, representing a drop of 8.2% compared to the previous month but an increase of 7.3% compared to September 2021. Cumulative US coffee imports through September totaled 18.368 million bags, representing a 4.5% increase compared to the same period in 2021. However, the volume is 5.9% lower than that seen in 2019 (pre-pandemic), when the country imported 19.529 million bags.
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