Coffee Market Report
Vietnam, the largest robusta producer and exporter to consumer markets, continues to experience challenging internal trading conditions, that have carried through from the 2022/23 coffee year, when robusta demand outweighed supply in line with a combination of factors including increased robusta usage in consumer markets over a comparatively short couple of years, and two lower production years due to biennially bearing factors, at 26.50 million bags. The forecast for the current coffee year is at a median estimate for October 2023 to September 2024 production coffee year to reach a median total 28 million bags. This forecast is 1.81% higher than the previous year. However, the carryover stocks from the previous crop year estimated at a very low 339,000 bags, already absorbed. The record-breaking export figures reported in December and January of this crop year, may be interpreted as catch up of prior committed shipments as yet unfulfilled in the 2022/23 export year, which at the same time with the new 2023/24 crop starting to flow, intended to fuel the lower than ordinary consumer inventories being held, particularly in the largest combined coffee consumer bloc, Europe. The altered shipping circumstances in the Red Sea added complexity to an already squeezed robusta market, to accentuate the inversion in the London market as winter roasting demand sought out spot delivery. A ripple effect, meanwhile, in worldwide shipping lanes via altered routing is being felt as regularity of shipments, equipment availability and vessel space on primary arterial coffee routes to consumer markets, is compounding supply chain disruptions and is reflected once more in the inverted market structure as spot demand seemingly outstrips supply. One might anticipate however that there are point in time influences within the market, there is coffee in Vietnam, but the internal market is experiencing turmoil as producers look to higher internal prices, which have already doubled on the same time last year. Indonesia, and significantly in volume terms, Brazil, robusta new crop coffees will come to the markets by mid-year, to possibly tamp the speculative sector and boost robusta supply to consumer markets. The demand side in mature coffee consumer markets meanwhile is reported to be on a steady trajectory, and while immature coffee consumer markets are posting growth in double digit percentile increases, these figures are still from a relatively low base in new markets in the Middle East and Asia. There remains meanwhile, the possible overreliance of consumer markets on a handful of large producer coffee origins which one could argue has contributed toward the coffee market circumstance as it is today. Meanwhile, these largest coffee producer countries have set in motion an intentional drive for local consumption and in the case of Brazil and Indonesia successfully established an internal demand and value add industries, Vietnam closely following this example, and both local and multinational investments in value-add production advancing in this country. Within the median forecasts for the seasonal export year October 2023 to September 2024, Vietnam is anticipated to export 1.92% or 500,000 bags less of green coffee than the previous October 2022 to September 2023 coffee year, the estimate at a potential to reach 25.50 million bags.
In Brazil, the new Conillon robusta coffee crop is soon to come to the fore, and this is estimated to bring in a median 22.50 million bags robusta coffee in 2024/25 coffee year. A vast percentage of this coffee will be consumed internally, as Brazil historically dominates the natural arabica sector where exports to consumer markets are estimated to reach 45 million bags in their coming coffee year. Indonesia remains second in size of exports of robusta coffee production to importer consumer markets. This country is near to completing the current April 2023 to March 2024 coffee year, that has been estimated at 9.70 million bags by the latest United States Department of Agriculture USDA Global Agricultural Information Network report. Harvest of this country’s new April 2024 to March 2025 coffee crop is soon to begin, and this third largest robusta producer is forecast to reach a potential 10.50 million bags production, of which 5 million bags is forecast for export to consumer markets.
The inclement weather experienced in Uganda is reflected in the official export figures released by the Uganda Coffee Development Authority, illustrated that total robusta exports for the first four months of the 2023/24 coffee year to be 1.49 million bags or 1.05% lower year-on-year. The median estimate for the current October 2023 to September 2024 coffee year which in this expansive country has more than one harvest a year, may nevertheless require a review by authorities in months ahead. At this time, the median estimate coffee for robusta production from Uganda is that the 23/24 robusta crop will reach 5.18 million bags or 4.05% larger than the previous year.
There have been extreme weather conditions in play this year, as the world endures what is reported by the World Meteorological Organisation to be one of the five strongest El Niño weather events in recorded history. The longer-term forecasts thus far indicate that a return to neutral weather conditions in less likely and that it is more likely that there is a move from the current El Niño weather phenomenon to La Niña weather patterns toward the latter end of the calendar year. The La Niña weather phenomenon traditionally brings with it the opposite effect of El Nino and while the arrival timing and strength of the pattern which is also still not confirmed, this is likely to bring more rain in areas that are traditionally drier in El Nino conditions, and less rain in areas that are generally wetter toward the latter end of the year. The last two La Nina weather events which brought continuous rainfall to Colombia as an example, is generally acknowledged to have been the cause of a lack of sufficient stress to coffee trees during flowering season which translated into two lower than anticipated production years in that country.
In the markets meanwhile, the London Robusta coffee market reached a high point of US$ 3,431.00 per Mt during trade yesterday, this since the contract started trading on the Intercontinental Exchange in January 2008. The factors of supply constraints from the world's largest robusta coffee producer Vietnam, along with logistical challenges in moving coffee to consumer markets, continue to provide buoyancy.
The latest round of economic data is due to be released in the U.S.A. later today, which will detail the world’s leading economy’s jobs data, and further may have an influence on the markets in general terms. This week has seen the weakening of the US Dollar against a basket of currencies, and the related gain in value in the Brazil Real, which has strengthened by 1.28% during the week thus far and settled around the high for the month against the US Dollar, yesterday. The Brazil Real strength to the US Dollar can traditionally discourage selling activity within the interior of Brazil, as returns to producers are decreased in Brazil Real terms, which is likely to assist in having some impact upon the direction of the New York futures markets, albeit that producers are relatively well financed at this stage and continue to hold back from volume sales.
The Certified washed Arabica coffee stocks held against the New York arabica market were seen to increase by 18,330 bags yesterday, to register these stocks at 410,877 bags, with 98.96% of these certified stocks being held in, Europe at a total of 406,662 bags and the remaining 1.04% being held in the USA at a total 4,215 Bags. Of this, a total 196,333 bags, or 47.78% of the coffees registered and stored in consumer country certified warehouses of the exchange, are Brazil washed arabica, and a further 29.21% of these certified coffees, originating from Honduras. The pending grading stocks were seen to increase by 815 bags; to register 162,280 bags pending grading on the day.
The May 2024 to May 2024 contract arbitrage between the London and New York markets widened yesterday, to register this at 38.86 Usc/Lb. This equates to 20.22% price discount for the London Robusta coffee.
It was another firm day on the commodity markets yesterday, with investors look towards interest rate cuts towards the middle of the year. The European Central Bank kept interest rates steady during their policy meeting yesterday, whilst indicating that there may be grounds to lower borrowing costs later in the year as there has been good progress on cooling inflation. A number of commodities, including Gold, Cocoa and London Robusta Coffee have been seen to reach all-time record highs this week. A weaker US Dollar is seen to be a bullish factor for commodities traded in other currencies. The Coffee, Soybean, Wheat, Gold, Silver and Platinum markets ended the day on a positive note, while the Cocoa, Corn, Sugar and Palladium markets ended the day on a negative note. The day starts with the U.S. Dollar trading at 1.281 Sterling, at 1.094 the Euro and with the US Dollar buying 4.935 Brazil Real.
The New York market started the day yesterday trading on a firmer note, carrying through momentum from the close on Wednesday, whilst the London market started the day trading on a modest softer note. Both markets were seen to trade marginally to the south of par for the remainder of the morning session, setting new lows for the day. As the afternoon progressed, the New York and the London markets rebounded from the earlier lows to trend in a firmer direction. This support was seen to quickly build as a firmer trend built with activity increasing in New York. The arrival of the America’s at the start of their business day pushed New York higher, triggering buy stops along the way to accentuate the gains for the day, this assisted to trigger speculative short covering which saw the New York market gain ground quickly throughout the afternoon session, with the London market following suit to make significant gains throughout the afternoon session. The New York market continued the upward momentum before being capped late in the day, to see the market drop back from the earlier highs and attract some degree of selling towards the close. The London market followed suit to also see the gains capped during the late afternoon session. The London market started to attract selling, pushing the market back from the historic highs, to see the market settle on a firmer note at the close albeit back from the highs of the day.
The London market ended the day on a positive note with 47.68% of the earlier gains of the day intact, while the New York market ended the day on a likewise positive note with 69.82% of the earlier gains of the day intact. This follow through firmer close for the markets, might indicate some degree of support albeit that both the New York and the London markets fell back from the earlier highs of the day towards the close, under good volumes of trade. One might therefore think that the markets might be pressured for a hesitant start to early trade today, against the prices set yesterday, as follows:
LONDON ROBUSTA US$/MT NEW YORK USC/LB.
MAY 3381 + 72 MAY 192.20 + 5.90
JUL 3271 + 57 JUL 189.90 + 5.90
SEP 3189 + 56 SEP 189.00 + 5.55
NOV 3096 + 55 DEC 188.55 + 5.40
JAN 3027 + 65 MAR 188.30 + 5.20
MAR 2988 + 66 MAY 188.30 + 5.15
MAY 2962 + 66 JUL 187.95 + 5.10
JUL 2941 + 66 SEP 187.25 + 5.00
