Coffee Weekly Report

Read our latest special analysis - Coffee flowering remains at risk with La Niña for the third consecutive year

In a week of risk aversion in the global macroeconomic scenario, which pressured commodities and significantly increased the value of the dollar against emerging currencies, and in the face of more solid signs of rainfall in the coffee-growing areas of Brazil and advancing stocks at American ports, coffee futures were under pressure last week.

In New York (ICE), after starting the week giving back the gains of the previous Friday (9), the most active contract (Dec/22) remained under pressure on Tuesday (13) despite the weak figures for Brazilian exports in August, pressured by the bearish context for commodities and strong 2.1% rise of the real/dollar pair after the release of higher-than-expected inflation data in the United States. On Wednesday (14), in addition to the maintenance of the more turbulent context built in the previous sessions, forecasts of more robust rainfall in the Brazilian coffee belt led the Arabica coffee to post its largest daily drop in the week when it computed a fall of 585 points (2.65%). Finally, the increase in stocks at US ports contributed to lowering prices, ending the week with a variation of -1345 points (-5.9%), quoted at US₵ 215.10/lb.

In London (ICE Europe), Robusta's most active contract (Nov/22) followed a similar movement to New York, following the bearish bias for the commodities complex and greater optimism about the supply of Brazilian coffee for the next season. However, the Robusta coffee market has been showing lower trading volumes as agents have been waiting for the beginning of the new Vietnamese harvest, which should start in some regions in October, gaining more pace in November. As a result, the Robusta coffee ended the week with a retraction of USD 62 (2.7%), quoted at USD 2202/t.
 

Weekly intraday (most active contract) – Sept 12 to 16  

In Brazil, Cepea's Arabica indicator posted a weekly decrease of 3.5% to the period quoted at BRL 1270.42/bag. On the other hand, Robusta coffee showed a slight increase of 0.5% to close at BRL 746.72/bag.

The weather outlook, mainly responsible for pushing Arabica prices to a level close to US₵ 240/lb, has been causing significant pressure on prices while indicating that the dry period in the coffee belt should be closed. The rainfall forecast models have been indicating more consistently good rainfall levels in the main areas of the coffee belt for the next 15 days since the end of last week, with the regions of Sul de Minas and Mogiana expected to be the main beneficiaries, but with rain also reaching the Cerrado, Matas de Minas, West of São Paulo and Paraná. The volumes, if realized, may trigger the awaited blooming in several coffee areas. In this context, the news about this process should greatly affect prices until the beginning of next month. It is also worth remembering that if flowering is triggered, the continuity of rainfall is essential for this success.

The weather in other important producers should also remain in the spotlight. For example, in Colombia, with the start of the rainy season in the country, producers remain concerned about a new excess of rainfall caused by La Niña, which could impact the harvest of the main crop scheduled for the last quarter for the third consecutive year. Colombia's National Coffee Research Center (Cenicafé) has projected rainfall of 20% to 40% above the historical average for the second half of September, which should keep Colombian producers on alert.

On Thursday (15), the agents also reacted to the release of the stocks at US ports by the Green Coffee Association (GCA), which reported an increase of 226 thousand bags in August, up 3.6% over the previous month to 6.450 million bags. The increase surprised some agents since, historically, August usually presents a drop, with the average of the last five years pointing to a retraction of 1.3%. 
 

Coffee stocks at US ports - GCA (million bags)

Source: GCA. Design: StoneX.

While still historically low, the increase pushed stocks to their highest level since August 2020, at which point they had been declining rapidly. GCA stocks also went from a 9.7% below average condition in July to a 5.2% below, the smallest distance from average since the beginning of the year. Although consumption problems in the United States have not yet been identified, the significant increase could cast doubt on this topic and point to a more comfortable supply condition in the largest global coffee consumer, which acts bearishly for prices.

Monthly coffee exports from Brazil (million bags)

Source: Cecafé. Design: StoneX.

The underperformance compared to last year monthly is a cause for concern, which goes hand in hand with fears over lower-than-expected crop performance. Last week, Cooxupé, Brazil's largest coffee growers' cooperative, reported it expects exports to fall in the first half of 2023.

However, it is worth noting that August's worse year-on-year performance was mainly due to exports of Robusta coffee. The volumes of this variety shipped in August were only 89 thousand bags, 74% less than the 345 thousand bags shipped in the same month of 2021. The demand for Robusta in the domestic market and the positive differentials have inhibited its exports in recent months. On the other hand, Arabica coffee has seen an 11% increase year-on-year, from 2.126 million bags shipped in August last year to 2.353 million. Thus, the accumulated Arabica coffee exports for the first two months of the year are now positive, with 4.408 million bags shipped, 2.7% higher than the first two months of the 2021/22 crop, when 4.291 million bags were exported.
 

Seasonality of Brazilian Arabica exports (million bags)

Source: Cecafé. Design: StoneX.