Arabica coffee recovers after hitting six-week low

Coffee prices Thursday rallied sharply, with arabica jumping to a 1-week high. A weaker dollar Thursday sparked short-covering in coffee futures. Also, easing global banking concerns sparked a rally in risk and commodity assets.

Arabica coffee futures on ICE recovered on Thursday, taking their cue from a calmer tone in the broader financial markets and recovering from a six-week low hit in the prior session.

May arabica coffee gained 1.2% to $1.7455 per lb at 1033 GMT, having touched a low of $1.7105 on Wednesday.

U.S. green coffee stocks fell by 159,994 bags to 6.1 million 60-kg bags by the end of February, their lowest since late June, data from the Green Coffee Association showed.

Rabobank said traders were relying on stocks, including ICE-certified stock, because differentials or premiums for physical coffee in top producer Brazil remain elevated.

On Wednesday, arabica fell to a 6-week low, and robusta fell to a 1-month low, after the Brazilian real tumbled to a 2-1/4 month low. A weaker real encourages export selling from Brazil’s coffee producers. Also, a rebound in ICE inventories weighs on robusta prices after ICE robusta inventories Thursday climbed to a 3-1/4 month high at 7,538 lots.

Smaller robusta coffee supplies are bullish for robusta prices after the General Department of Vietnam Customs reported last Thursday that Vietnam’s Feb coffee exports were down -34.2% y/y at 122,833 MT and Jan-Feb coffee exports were down -14.7% y/y at 283,339 MT. Vietnam is the world’s largest producer of robusta beans.

The International Coffee Organization (ICO) on March 10 projected that the global 2022/23 coffee market will be in deficit for a second year following the 4 mln bag to 5 mn bag deficit in 2021/22 due to arabica crop woes. The USDA, in its bi-annual report released on December 23, cut its global 2022/23 coffee production estimate by -1.3% to 172.8 mln bags from a June estimate of 175.0 mln bags. In addition, the USDA cut its 2022/23 global coffee ending stocks estimate by -1.7% to 34.1 mln bags from a June estimate of 34.7 mln bags. Meanwhile, the USDA’s Foreign Agriculture Service (FAS) on November 22 cut its Brazil 2022/23 coffee production forecast by -2.6% to 62.6 mln bags from a prior estimate of 64.3 mln bags. This year was supposed to be the higher-yielding year of Brazil’s biennial coffee crop, but coffee output this year was slashed by drought.