Thursday 07 July 2022

Concerns about supply from major origins remain the key factor in the coffee market

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LONDON, UK – The upward trend in coffee prices continued in June 2021 as concerns about supply from major origins remained the key factor in the coffee market, says the ICO in its lastest monthly coffee report. In June 2021, coffee prices recorded the eighth consecutive month of increase, triggered by the expectations of reduced supply in the coffee market from some origins in addition to disruptions in trade flows. The monthly average of the ICO composite indicator reached 141.03 US cents/lb in June 2021, representing an increase of 33.2% from the level of 105.85 US cents/lb recorded in October 2020.

This is also the highest monthly average since the level of 145.82 US Cents/lb registered in November 2016. Prices of all four groups of coffee have recorded a substantial increase. Increased activities of non-commercial speculative sector were also recorded in June 2021, as growing net long positions supported price trends upward.

In terms of coffee market fundamentals, exports by all exporting countries to all destinations totalled 9.8 million 60-kg bags in May 2021, a drop of 10.1% compared with 10.9 million bags in May 2020.

The level of total exports in May 2021 represented a 21.5% reduction of the volume recorded in May 2019, before the pandemic. The availability of containers for shipments continue to be a major constraint to trade flows.

However, total exports over the first eight months of coffee year 2020/21 amounted to 87.3 million bags, compared with 85.4 million bags during the same period in coffee year 2019/20. Cumulative exports from June 2020 to May 2021 are estimated at 129.2 million bags, a relatively stable level compared with the 129.4 million bags recorded from June 2019 to May 2020.

World consumption for coffee year 2020/21 is projected at 167.23 million bags, an increase of 1.9% on its level of 164.01 million bags in coffee year 2019/20. Total production for coffee year 2020/21 is estimated at 169.50 million bags, representing a 0.3% increase on 168.94 million bags in coffee year 2019/20. Although world consumption is increasing, it remains 1.4% below world production.

Moreover, in coffee year 2021/22 the supply/demand ratio is expected to reverse as world production will barely meet world demand.

The monthly average of the ICO composite indicator rose by 4.6% from 134,78 US cents/lb in May 2021 to 141.03 US cents/lb in June 2021. This level reached in June 2021 is 42.4% higher than June 2020 and represents the eighth consecutive month of increase and the highest monthly average since 145.82 US cents/lb recorded in November 2016.

Compared to the monthly average of 99.05 US cents/lb recorded in October 2020, the level of June 2021 represents a 33.2% increase. The linear trend shows a continuous and steady increase in coffee prices over the first nine months of coffee year 2020/21.

Prices for all group indicators increased in June 2021 and achieved their highest records over many years. The price of 206.53 US cents/lb for Colombian Milds reached in June 2021 is the highest monthly average since the level of 222.59 US cents/lb recorded in October 2014. It also represents a rise of 40.3% from the level of 147.16 US cents/lb recorded in June 2020.

Price for Other Milds increased by 3.2% to 192.45 US cents/lb compared to 186.46 US cents/lb in May, which is the highest monthly average since 193.60 US cents/lb in December 2014. The average price for Brazilian Naturals, which rose by 5.2% to 148.12 US cents/lb, is the highest monthly average since 157.12 US cents/lb in November 2016.

Moreover, compared to its level of 92.56 US cents/lb in June 2020, the Brazilian Naturals indicator increased by 60% in June 2021. The Robusta indicator price recorded a 6.5% increase to 84.85 US cents/lb compared to 79.68 US cents/lb in May 2021. The Robusta price in June 2021 is also the highest monthly average since 85.32 US cents/lb recorded in October 2018.

The continued price firmness is confirmed by the behaviour of the futures markets. The monthly average of the 2nd and 3rd positions in the New York Futures coffee market rose by 2.6%, to 156.43 US cents/lb, in June 2021 from 152.42 US cents/lb in May 2021, the highest level since November 2016. In the case of the London futures coffee market, the monthly average of the 2nd and 3rd positions rose by 5.8%, to 73.16 US cents/lb, in June 2021 compared with 69.15 US cents/lb in May 2021. The level of June 2021 for the London futures coffee market is the highest since 75.23 US cents/lb recorded in November 2018.

The differential between Colombian Milds and Other Milds increased by 12.2% to 14.09 US cents/lb and the differential between Colombian Milds and Brazilian Naturals increased by 0.4%. The differentials between Other Milds and Brazilian Naturals decreased by 2.8% to 44.32 US cents/lb in June 2021.

As the price increase for Robusta group was the highest of the four groups in June 2021, the differentials between the Arabica groups and the Robusta group widened by only 2%, 0.8% and 3.4% by Colombian Milds, Other Milds and Brazilian Naturals respectively. The arbitrage between Arabica and Robusta coffees, as measured on the New York and London futures markets, remained almost unchanged at 83.26 US cents/lb in June 2021 compared with 83.27 US cents/lb in May 2021.

Although activities of the non-commercial speculative sector increased in June 2021, price volatility was limited. Intra-day volatility of the ICO composite indicator price increased by 0.4 percentage point to 9.1% in June 2021.

The volatility for the Brazilian Naturals remained unchanged at 11.6%, while the volatility of the Colombian Milds and Other Milds both increased slightly by 0.1 and 0.2 percentage point to 8.2% and 9.0% respectively. The volatility of the Robusta group price increased from 6.7% in May 2021 to 7.7% in June 2021. The volatility of the London Futures market has increased from 7% in May 2021 to 8.7% in June 2021. It has increased from 11% in May 2021 to 11.5% in June 2021 in the New York futures market.

Total production in coffee year 2020/21 is estimated to rise by 0.3% to 169.50 million bags. Arabica production is expected to increase by 2.2% to 99.1 million bags while the production of Robusta coffee is expected to decrease by 2.1% to 70.4 million bags.

At the regional level, African output is expected to remain unchanged at 18.68 million bags in coffee year 2020/21 in comparison with the previous coffee year. Production for Asia & Oceania is forecast to fall by 1.1% from 49.45 million bags in 2019/20 to 48.93 million in 2020/21.

Production for Mexico & Central America is expected to decrease by 2.6% at 19.01 million bags against 19.60 million bags in coffee year 2019/20. An increase of 2% in production is expected from South America at 82.8 million bags, compared with 81.2 million bags in 2019/20.

However, Brazilian production for the next crop year 2021/22, which has already started, is expected to decrease significantly as it is the off-year production cycle of Arabica coffee and was substantially affected by below-average rainfall.

Regarding performance expected from groups, production of Colombian Milds and Brazilian Naturals will increase by 2.4% and 4.3% to 15.9 million bags and 54.4 million bags respectively. The production of Other Milds and Robusta will decrease by 1.8% and 2.1% to 28.8 million and 70.36 million bags respectively.

World coffee consumption is projected to increase by 1.9% to 167.2 million bags in 2020/21 compared to 164.1 million bags for coffee year 2019/20, but still 0.8% below the level of 168.5 million bags before the outbreak of the pandemic.

With the easing of pandemic restrictions related to covid-19 and the subsequent prospects of economic recovery, world consumption is expected to continue growing. Consumption in importing countries is anticipated to increase by 2.3%, to 116.7 million bags, while domestic consumption in coffee-exporting countries is expected to increase by 1% at 50.5 million bags.

The supply/demand ratio is expected to tighten as total supply is forecast 1.4% higher than demand in coffee year 2020/21 as compared to 3.2% in 2019/20. With the expected reduction in outputs from many exporting countries in coffee year 2021/22, total supply is likely to fall below world consumption.

Exports of all forms of coffee in May 2021 totalled 9.78 million bags, representing a 10.1% decrease compared with 10.9 million bags in May 2020. Exports of green coffee in May 2021 declined by 12.3% on May 2020 while exports of roasted and soluble coffee increased by 20.1% and 9.7% respectively.

The decline in green coffee exports was significant for Colombian Milds, as shipments in May 2021 were 55.2% lower than in May 2020. Green coffee exports of Other Milds and Robusta declined by 3.9% and 6.5% respectively in May 2021 compared with their levels of May 2020.

The decline in the exports of the Colombian Milds was due largely to the social unrest throughout Colombia, the main origin of this group, which hampered the normal flow of exports. Nevertheless, cumulative green coffee exports of the four groups over the first eight months of coffee year 2020/21 increased by 3.1%, to 79.53 million bags, compared with 77.06 million bags during the same period in coffee year 2019/20.

In regional terms, exports of all forms of coffee from Africa decreased by 3.2% to 8.68 million bags in the first eight months of coffee year 2020/21. Asia & Oceania’s coffee exports declined by 6.0% to 26.06 million bags in October 2020 to May 2021.

Exports from Mexico & Central America fell by 6.5%, to 10.43 million bags, compared with 11.16 million bags exported over the same period during coffee year 2019/20. From October 2020 to May 2021, South America’s exports increased by 12.3%, to 42.11 million bags.

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