After a small surplus in the global coffee market in 2017/2018, a much larger surplus is expected in 2018/2019, primarily as a result of a large crop in Brazil.
In November, the US Department of Agriculture’s trade office in São Paulo issued a revised estimate for Brazilian coffee production in marketing year 2018/19 (July-June) of 63.4 million bags. The USDA figure was somewhat higher than one released earlier by Brazil’s forecasting agency, Conab, whose estimate was six per cent lower, at 59.91 million bags (45.94 million bags of Arabica and 13.97 million of Robusta coffee).
As Commerzbank Commodities noted in a 3 December 2018 report, although the Arabica coffee ended its long downturn in September, recovering in October from around 100 US cents to around 120 US cents per pound, prices have fallen steeply since and as of 7 December 2018 were back around the 100 cent mark.
Commerzbank said Brazil exported around a quarter more coffee in October 2018 than it did in October 2017 with the record high flooding the international market.
The 2017/18 season ended with a surplus of 1.6 million bags, according to the ICO, but in September it was still forecasting a deficit. “An even higher surplus is expected on the coffee market in 2018/19, primarily on the back of record-high Brazilian and Vietnamese crops,” said Commerzbank, noting that the talk is mostly in the region of 5-8 million bags, with some analysts putting the surplus way higher, at a huge 11 million bags.
Commerzbank said the outlook for the next Brazilian crop in 2019/20 is also positive in view of recent good weather. Sufficient rain ensured favourable conditions for flowering, and production of Robusta coffee is expected to recover further.
Commerzbank said the development of the exchange rate is likely to have a positive impact on prices from mid-2019. “We expect to see an Arabica price of 130 US cents per pound and a Robusta price of US$1,700 per ton in Q4 2019,” it said.
(photo: Neil Palmer, CIAT)