Coffee Weekly Report

Arabica futures prices showed a strong advance at the beginning of last week, supported by the news that Brazilian production in 2023 would not be as large as part of the market was expecting, with prices reaching a high of 1360 points by Thursday (15). However, the increase in stocks at US ports in November, released on December 15 by the GCA, weighed on quotes on Friday (16) as they fell by 735 points but consolidated the advance of 625 points (3,95%) in the week for the most active contract (Mar/23), which closed Friday's session (16) at US₵ 164.40/lb.

In London, there was no major change in the movements of Robusta futures prices, which ended with a small increase of USD 2/t (0,1%) for the March contract, which closed the session on Friday (16), quoted at USD 1866/t. 
 

Weekly Intraday (most active contract) - December 12 to 16

Following the movements of Arabica prices abroad, Cepea's Arabica indicator in Brazil ended the week with an increase of 4,14%, closing Friday at BRL 1020,37/bag. Robusta coffee prices also ended the week higher, with Cepea's indicator for the type advancing 3,68% and reaching BRL 700,24/bag. Robusta prices have been advancing amid strong industry demand in Brazil as producers try to hold back some production in search of better prices. 

In this context, Robusta coffee differentials advanced again last week and exceeded the USD 250/ton level, indicating that Robusta prices traded at the producer level in Brazil are 250 dollars per ton above the prices observed in London, the reference exchange for the type. For more details, access the interactive report on coffee price differentials in Brazil.

As has been warned in other editions of this report, the agents' attention will be turned to the report's disclosures with the USDA's global estimates to be released tomorrow (12/20). There is an expectation that the agency should reduce in its estimates the surplus for the 2022/23 crop, which in the last edition of the report, released in June this year, had pointed to a surplus of 7,9 million bags in the global supply and demand balance. The reduction expectation is based on the attaché reports released in November, which lowered USDA estimates for production in Brazil, Vietnam and Colombia.

Coffee stocks at US ports GCA (million bags)

Source: GCA. Design: StoneX. 

BRAZILIAN GREEN COFFEE EXPORTS INCREASED BY 19.2% IN NOVEMBER

Last week, the Brazilian Coffee Exporters Council (Cecafé) indicated that in November, Brazil exported a total of 3,67 million bags, representing an increase of 14,2% compared to the same month of 2021. Of these, 3.4 million bags exported were green coffee, an increase of 19.2%. Arabica coffee exports totaled 3,3 million, advancing 25,5%, and Robusta totaled just under 100 thousand bags, a drop of more than 55%. 

Robusta exports have retreated amid strong demand from the Brazilian industry, which has supported high price differentials and discouraged Brazilian exports of the type. On the other hand, the increase in Arabica exports shows a more comfortable availability of the type on the international market, even with reduced production in 2022/23, due to weather problems.

Brazilian monthly coffee exports (million bags)

Source: Cecafé. Design: StoneX.

It is worth remembering that the large discrepancy in estimates for Brazilian production is the biggest challenge for the coffee market. In 2022/23, estimates range from 50.9 million (Conab) to 64 million bags, with an average estimate of around 60 million. Despite the appeal by Conab, for example, to indicate a production close to 50 million bags, the export advance shows that perhaps production has not been so small. In any case, the measurement of this scenario can only be done at the end of the fiscal year, with the final accounting of exports and consumption. However, the increase in exports alone counteracts the view that the 2022/23 crop would have been small, acting negatively for quotations. StoneX estimated coffee production in 2022/23 at 58.9 million bags, with 20.6 million bags for Robusta coffee and 38.3 million bags for Arabica coffee.  

USDBRL rises amid doubts over Transition PEC Consumer coffee inflation hits double digits in Europe

Impacted by the stagnation of the progress of the Transition PEC (proposed amendment to the constitution) and increased risks that its approval will not happen in 2022, the USDBRL appreciated by 0,9% last week in the Brazilian foreign exchange market, closing the week at BRL 5,295. The dollar index ended the period at 104,7, a drop of 0,1% marked by the disclosures of inflation indices and monetary policy decisions by central banks of major global economies.

In Brazil, with few indicators to be released, the PEC continues this week as the main focus of investors. Before proceeding to vote on the Chamber proposal, deputies must wait for the definition of the judgment to suspend the so-called “secret budget” by the Superior Federal Court (STF), which should have its vote ended this Monday (19). The secret budget constitutes an important measure of parliamentary support in exchange for the release of public funds. The expiration of the deadline for approval of the PEC may lead the transition government to give in on some points regarding the proposal, such as reducing its value or its term, which, if it occurs, would tend to reduce the assessment of fiscal risks by investors and give some support to the Brazilian currency.

Abroad, the week was buoyed by the release of inflation indicators and interest rate decisions in the United States and Europe. The Federal Reserve confirmed what it had been signaling a few weeks ago and raised the US interest rate by 0,50 p.p. to the range between 4,25% and 4,50% per annum. Despite the reduction in the pace of adjustments, after four increases of 0,75 p.p., Fed members showed that despite signs of cooling inflation, it is necessary to continue raising the interest rate to achieve price stability. 

In conjunction with the decisions, the Fed's revised quarterly projections for the US economy next year also raised concerns about a possible prolonged recession in 2023. The highlights are revisions to GDP growth from 1.2% to 0.5%, the unemployment rate from 4.4% to 4.6%, and consumer inflation from 2.8% to 3.1%. In addition, most members showed that they foresee the US basic interest rate between 5.00% and 5.25% at the end of 2023.

Following the Fed's lead, other major central banks in advanced economies, such as the Bank of England and the European Central Bank, also raised their key interest rates, reinforcing the effort to control an inflationary acceleration that has proven even more serious on the European continent.

The consumer price index (CPI) publication showed that inflation could continue to affect global demand even with reductions or slowdowns negatively. In the United States, the 12-month cumulative CPI fell from 7.7% in October to 7.1% in November, better than the market forecast of 7.3%. In Europe, the accumulated in 12 months showed a slight reduction from 10,6% to 10,1% in November. However, it frustrated analysts' expectations, who expected a reduction of 10,0%.

Coffee inflation to the consumer is still a source of concern regarding the consumption of the drink. The accumulated in 12 months in the United States remains at significantly high levels despite showing a slight reduction to 28,3%, in addition to not yet seeing a trend of sequences of reductions in the coming months as occurred in Brazil from May. The eurozone is also worried. The region accumulated follows in a sequence of advances, having reached double digits for the first time in November and its highest level since the beginning of the historical series for the European bloc.
 

12-month inflation of roasted and ground coffee to the consumer

Sources: BLS, Eurostat and IBGE. Design: StoneX.

On this week's economic calendar, the revision of the United States GDP for the 3rd quarter on Thursday (22) stands out, as well as indicators of consumer sentiment in the country. In addition, a gradual reduction in the pace of activity in global markets should also be noted as the Christmas and New Year holidays approach. 

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