Coffee Prices Dip Amidst Brazil’s Export Surge and Vietnam’s Supply Challenges

On Monday, March arabica coffee (KCH24) concluded with a decrease of -0.70 (-0.36%), while Mar ICE robusta coffee (RMH24) saw a decline of -25 (-0.75%)

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Coffee Prices Dip Amidst Brazil's Export Surge and Vietnam's Supply Challenges

Coffee prices experienced a retreat on Monday, reversing early gains, as reports indicated a surge in coffee exports from Brazil, the world’s largest producer of arabica beans. The Brazilian exporter group, Cecafe, disclosed a substantial increase of +45% year-on-year in Jan coffee exports, reaching 3.7 million bags.

Initially, coffee prices had opened higher on Monday, with arabica reaching a 1-1/2 month peak, driven by forecasts indicating limited rainfall in Brazil for the week. Additionally, the diminishing robusta coffee supplies, as reflected in record-low inventories monitored by ICE, contributed to the initial upward trend.

Dry weather conditions in Brazil, particularly in the Minas Gerais region, have bolstered arabica coffee prices. Reports from Somar Meteorologia highlighted that the region received only 49% of the historical average rainfall in the past week, significantly impacting coffee cultivation in an area that accounts for about 30% of Brazil’s arabica crop.

The tight coffee inventories have been a supportive factor for coffee prices. ICE-monitored robusta coffee inventories plummeted to a record low, while arabica coffee inventories, though recovering from a 24-year low, remained relatively constrained.

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However, the market faced bearish pressures following the International Coffee Organization’s (ICO) report indicating a significant increase in global coffee exports, particularly in December. Furthermore, projections of higher coffee production in Brazil for the upcoming crop year dampened market sentiment. Both Safras & Mercado and Comexim revised their estimates upwards for Brazil’s coffee crop and export figures.

Vietnam’s robusta coffee exports surged, but logistical challenges emerged due to escalated shipping costs and delivery delays prompted by attacks on commercial vessels in the Red Sea. Consequently, major buyers shifted their focus towards securing more robusta supplies from Brazil, exacerbating supply concerns from Vietnam and contributing to bullish sentiments for robusta prices.

Despite global projections of increased coffee production, factors such as the ongoing El Nino weather event, anticipated to affect coffee-producing regions adversely, continue to buoy prices. The event may bring drought to Vietnam’s coffee areas later this year and into early 2024, potentially impacting production.

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The USDA’s Foreign Agriculture Service (FAS) forecasts a rise in global coffee production for the upcoming year, with Brazil and Colombia expected to see notable increases in arabica production. However, projections of a surplus in global coffee supply may temper long-term price outlooks.

In summary, coffee prices fluctuated amidst a complex interplay of factors, including export dynamics, weather patterns, and supply chain disruptions, shaping market sentiment and price trends in the short and medium terms.

FİKRİKADİM

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