BMI Research, part of Fitch Group, says it remains bearish on Arabica coffee prices and anticipates that the global coffee market will be better supplied in the coming months as Asian supply rebounds.
In a recent report on the market, BMI said it expects Arabica prices to trade sideways at a level between 130-160 cents per pound (cents/lb) in coming weeks.
“High Robusta prices due to dryness in Asia will support Arabica prices, but we believe most of the bullish news has been priced in,” said the company. “Moreover, we anticipate that the Brazilian Real will weaken over the coming months, which will put downward pressure on prices as Brazil is the world’s largest exporter.” BMI said technical and sentiment indicators are largely neutral.
“We are maintaining our coffee price forecasts and continue to expect prices to average slightly higher year-on-year over our forecast period to 2021, albeit lower than current spot prices,” said BMI. “Prices will average US cents 135/lb in 2017, as the global market will achieve a modest 0.4 million bag surplus in 2016/17.
“More specifically, we estimate the Brazilian up-year crop grew by 10 per cent year-on-year due to good weather during the growing season. We are also anticipating record production in Colombia. However, we forecast a decrease in Robusta production from Asia in 2016/17, with weak output having already stimulated Robusta prices in recent months and contributed to rising Arabica prices, given that the two are substitutes.
“Beyond 2016/17, we expect the coffee market to post generally small surpluses, as Asian supply rebounds in 2017/18, which will help Robusta prices moderate. We forecast the Brazilian Real to weaken over the coming months before appreciating slightly against the dollar in the coming years,” BMI said. “Given the strong historical correlation between coffee prices and the Real, this means we expect coffee prices to average around 2016 levels.
“Our price forecasts out to 2021 are below the consensus compiled by Bloomberg and are also below the price trajectory implied by the futures curve, which is currently in contango.”