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ICO: coffee prices surge in May with revival in demand and concern over Brazil crop

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LONDON, UK — In May 2021, the ICO composite indicator for coffee prices rose by 10.4% to 134.78 US cents/lb, the highest monthly average since the level of 137.68 US Cents/lb registered in February 2017, says the ICO in its latest Coffee Market Report. A firm upward trend of coffee prices over the first eight months of coffee year 2020/21 seems to confirm a net recovery from the low price levels that began in coffee year 2017/18.

The performance of prices has been driven by an expected reduction in production in key exporting countries like Brazil for the 2021/22 season. Moreover, the brighter prospects for demand as the covid-19 pandemic-related lockdown measures are being removed in major consuming markets with the covid-19 vaccine programmes is generating greater confidence of consumers in an economic recovery and return to normal.

Prices of all four groups of coffee have recorded a substantial increase, particularly the groups of Arabica coffee. In terms of market fundamentals, shipments by exporting countries to all destinations totalled 11.40 million 60-kg bags in April 2021, compared with 11.29 million bags in April 2020.

As a result, total exports over the first 7 months of coffee year 2020/21 amounted to 77.52 million bags compared to 74.49 million bags over the same period in coffee year 2019/20.

Cumulative exports from May 2020 to April 2021 are estimated at 130.40 million bags, a small decrease of 0.48% compared with the 130.97 million bags recorded from May 2019 to April 2020. World consumption for coffee year 2020/21 is projected at 167.58 million bags, an increase of 1.9% on its level of 164.43 million bags in coffee year 2019/20.

Total production for coffee year 2020/21 is estimated at 169.60 million bags, representing a 0.4% increase on 168.94 million bags in coffee year 2019/20. Although world consumption is increasing, it remains 1.2% below world production. However, with prospects of lower production in Brazil for coffee year 2021/22 and the reductions in other countries, world consumption is likely to exceed world production in coffee year 2021/22.

The monthly average of the ICO composite indicator rose by 10.4% from 122.03 US cents/lb in April 2021 to 134.78 US cents/lb in May 2021. This level reached in May 2021 is 29% higher than May 2020 and represents the seventh consecutive month of increase and the highest monthly average since 137.68 US cents/lb recorded in February 2017.

In May 2021, the ICO composite increased consistently over the course of the month, starting at 127.21 US cents/lb and finishing on a high of 144.43 US cents/lb, an increase of 13.5%. The linear trend oshows a continuous and steady increase in coffee prices over the first eight months of coffee year 2020/21 and appears to presage a return to more remunerative levels for coffee growers.

Prices for all group indicators increased in May 2021 compared to April 2021. The largest increase occurred in the average prices for Brazilian Naturals, which rose by 13.4% to 140.85 US cents/lb, the highest monthly average since February 2017.

Prices for Other Milds increased by 10.6% to 186.46 US cents/lb compared to 168.65 US cents/lb in April and it is the highest monthly average since 190.0 US cents/lb in January 2015. Prices for Colombian Milds increased by 9.5% to 199.02 US cents/lb in May 2021 compared to 181.70 US cents/lb in April 2021 and the highest since November 2014 when it was 206.41 US cents/lb. The Robusta indicator recorded a 7% increase to 79.68 US cents/lb compared to 74.47 US cents/lb in April 2021. The Robusta prices in May 2021 are also the highest monthly average since 83.52 US cents/lb recorded in November 2018.

On the New York Futures market, which reflects the situation of Arabicas, the average of the 2nd and 3rd positions increased by 13.1% to 152.42 US cents/lb in May 2021 compared with 134.77 US cents/lb in April 2021. As for the London Futures market, which refers to the availability of Robusta coffee, the average 2nd and 3rd positions rose by 8.5% to 69.15 US cents/lb in May 2021 from 63.76 US cents/lb in April 2021.

The differential between Colombian Milds and Other Milds decreased by 3.8% to 12.56 US cents/lb and the differential between Colombian Milds and Brazilian Naturals increased by 1.1%. The differentials between Other Milds and Brazilian Naturals increased by 2.6% to 45.61 US cents/lb.

The differentials between the Arabica groups and the Robusta group have widened as increases of 11.3%, 13.4% and 23.1% were recorded 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, increased by 17.3% to 83.27 US cents/lb.

Intra-day volatility of the ICO composite indicator price increased from 7.3% in April 2021 to 8.7% in May. The volatility for all Arabica groups indicators increased in May, with the highest increase of 11.6% recorded by Brazilian Naturals.

Robusta experienced a decrease of 0.4% to 6.7%. While the volatility of the London Futures market has decreased by 0.6% to 7% in May 2021, it has increased by 1.7% in the New York Futures market at 11%, compared with 9.3% in April 2021. Prospects of lower production in Brazil during coffee year 2021/22 and significant decreases expected from other Arabica coffee-producing countries affected by climate-related disasters are increasing the price volatility of the Arabica groups.

In May 2021, the certified washed Arabica stocks held against the New York Futures Exchange were 2.21 million bags and certified stocks of Robusta coffee for the London Futures Exchange were 2.67 million bags, representing an increase of 7% and 6% respectively.

Total production in coffee year 2020/21 is estimated to rise by 0.4% to 169.60 million bags, with Arabica production increasing by 2.3% to 99.24 million bags. The production of Robusta coffee is expected to decrease by 2.1% to 70.36 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 2.1% at 19.19 million bags against 19.60 million bags in coffee year 2019/20. The decrease is likely to be significant as some countries in the region have been affected by hurricanes Eta and Iota earlier in this current coffee year as they are still struggling to recover from the damages caused to production and marketing infrastructure.

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.

World coffee consumption is projected to increase by 1.9% to 167.58 million bags in 2020/21 compared to 164.43 million bags for coffee year 2019/20. With the easing of covid-19 pandemic related restrictions and the subsequent prospects of economic recovery, consumers are regaining confidence leading to a positive trend of world coffee consumption. Consumption in importing countries and domestic consumption in exporting countries is expected to grow by 2.3% and 1.0%, respectively.

Consumption in Africa is expected to increase by 2.1% at 12.27 million bags. Consumption in Asia & Oceania is forecast to increase by 1.3% at 36.70 million bags. In the region of Mexico and Central America, consumption is expected to increase by 0.7% at 5.36 million bags.

Consumption in Europe and North America will increase by 1.8% and 3.7%, respectively. Consumption of South America is expected to increase by 1.2%. As a result, the surplus of total production over world consumption is expected to be reduced at 2.02 million bags, compared with 4.50 million bags in the previous coffee year. With the current development of the market fundamentals and the expected yield reductions in many exporting countries as well as reduced investments in coffee farms due to limited access to credit a tight supply/demand balance is expected in coffee year 2021/22.

Exports in April 2021 totalled 11.40 million bags, representing a 1% increase compared with 11.29 million bags in April 2020. Exports in the first seven months of coffee year 2020/21 reached 77.52 million bags, an increase of 4.1% compared to 74.49 million bags during the same period in coffee year 2019/20.

Cumulative exports of Colombian Milds and Brazilian Naturals over the first seven months of coffee year 2020/21 increased by 8.8% to 9.07 million bags and 18.3% to 27.68 million bags, respectively. Cumulative exports of Other Milds decreased by 6.4% to 13.14 million bags from 14.03 million bags in 2019/20. Shipments of Robusta over the same period of coffee year 2020/21 fell by 3.8% to 27.64 million bags.

The increase in exports was primarily driven by relatively high price levels and the ease of movement restrictions due to the covid-19 pandemic. However, concerns about the availability of containers for shipments remain a major concern to trade. Exports of green coffee increased by 4.8% to 70.42 million bags in the first seven months of coffee years 2020/21 compared to 67.2 million bags of the same period in the previous coffee year. Exports of roasted coffee fell by an estimated 6.3% to 403,767 bags, while those of soluble coffee fell by 2.4% to 6.68 million bags from 6.86 million bags over the seven months of coffee year 2019/20.

In regional terms, exports of all forms of coffee from Africa in the first seven months of coffee year 2020/21 decreased by 4.1% to 7.37 million bags, as shipments from Ethiopia, Côte d’Ivoire and Madagascar declined by 25.6%, 46.3% and 55.7% respectively. Uganda, the largest regional exporter, has recorded an increase of 16.2% to 3.4 million bags.

Asia & Oceania’s coffee exports declined by 6.5% to 22.94 million bags in October 2020 to April 2021. Viet Nam’s exports during this period declined by 14.3% to 14.76 million bags, while Indonesia’s shipments increased by 17.10% to 4.25 million bags. Exports from India, the region’s third largest producer, recorded an increase of 6.43% to 3.01 million bags compared to 2.91 million bags in 2019/20.

Compared to the first seven months of coffee year 2019/20, exports from Mexico & Central America fell by 8.9% to 8.27 million bags as parts of the region have not yet recovered from the severe impact of hurricanes Iota and Eta. Notably, shipments from Honduras, the region’s largest producer, decreased by 14.2% to 2.94 million bags while those from Nicaragua fell by 14.3% to 1.4 million bags. Guatemala’s exports declined by 9.41% to 1.59 million bags. Total exports of El Salvador and Panama also declined by 18.8% and 34.4%, respectively.

From October 2020 to April 2021, South America’s exports increased by 17.3% to 38.93 million bags. During this period, exports of all forms of coffee from Brazil rose by 21.7% to 28.72 million bags. Exports from Colombia increased by 8.6% to 8.14 million bags. Peru recorded a relatively stable level of its exports at 1.8 million bags while Ecuador’s exports declined by 4.7% to 257,383 bags compared with 270,009 bags in October 2020 to April 2021.