Coffee Futures

[Forex 2020]

Rabobank last Thursday raised its coffee surplus forecast for 2019/20 to 2.6 mln bags from 1.6 mln bags and for 2020/21 to 7.6 mln bags from 5.6 mln bags, citing the negative impact of the pandemic lockdowns on coffee consumption.
Arabica coffee prices were undercut by last Thursday's forecast by the USDA's Foreign Agricultural Service (FAS) that Colombia's 2020/21 coffee production will climb +2.2% y/y to 14.1 mln bags and that Colombia's 2020/21 coffee exports will climb +4.5% y/y to 13.5 mln bags. Colombia is the world's second-biggest producer of arabica coffee beans.
Coffee prices remain under pressure on concern that the pandemic-induced slump in the global economy will reduce coffee demand. Data May 7 from IRI showed that U.S. sales of coffee at supermarkets fell -20% w/w in the four weeks ended April 19. Comexim Ltd on Apr 22 said they expect no growth in global coffee demand this year and that there will be a 2020/21 global coffee surplus of 8 mln bags. Also, Brazilian coffee brokers are reporting that some international coffee buyers, mainly in Europe, are requesting that coffee shipments from Brazil be delayed up to 90 days as their coffee storage facilities are filled.
The International Coffee Organization (ICO) on Apr 28 forecast a global 2019/20 coffee surplus of +1.948 mln bags, illustrating a much easier supply situation compared with its March forecast for a -470,000 bag deficit.
Dry weather in Brazil is bearish for coffee as it accelerates the pace of the country's coffee harvest. Somar Meteorologia reported on Monday that rainfall in Minas Gerais was only 4.4 mm in the past week, or 26% of the historical average.
A supportive factor for coffee is dwindling U.S. coffee inventories after ICE-monitored coffee inventories last Wednesday fell to a 2-1/2 year low of 1.79 mln bags.
Ample supplies from Vietnam, the world's largest robusta coffee producer, are negative for robusta coffee prices. Vietnam's General Statistics Office reported Apr 29 that Vietnam's Jan-Apr coffee exports rose +4.5% y/y at 659,000 MT.

 

[WalletInvestor]

I have also heard from several sources that coffee and cocoa - though not likely to disappear completely - will become a luxury. Sadly, it sounds realistic.
Edit: seems like some posts before mine have been deleted, rendering my comment quite irrelevant

 

[MasterOfCoin]

I don't entirely understand the replies in this thread suggesting dire doom and gloom for coffee.

The original post is well presented, informative and liberally populated with facts, statistics and references. It was obviously carefully researched and written and perhaps merits more attention over time as we observe how the factors outlined evolve and influence prices. Certainly it deserves revisiting as things change to reflect those changes.

Do we have any members with experience in agricultural commodity trades that could offer further insight?

 

[TWI]

I was long coffee until that report which put a dent in the coffee book PnL.
It is hard to fight the facts presented in the report. I know Brazil has good forward sales, there was crop damage in central America and chart was shaping up nicely. I am back flat now. Cocoa ended up being the more sustainable trend.

 

[TWI]

(Bloomberg) -- The world’s largest coffee producer Brazil will likely see output of arabica beans, the type favored by Starbucks Corp., fall 33% next year as dry weather persists just as farmers increased pruning of trees. That’s the forecast of Volcafe Ltd., one of the world’s largest coffee traders. Brazil will probably harvest 34.2 million bags of arabica coffee next year, down from 51 million this year, the Winterthur, Switzerland-based trader said in a report to clients seen by Bloomberg. The “tentative” forecast comes after a preliminary crop survey, which was restricted by the pandemic.



Brazil’s output was already expected to drop next year after this year’s record crop and as arabica trees enter the lower-yielding half of a biennial cycle. But dry weather and increased pruning after blossoming failed in arabica areas of southern Minas Gerais, Cerrado and Mogiana exacerbated the declines, with Volcafe cutting its forecast by 3.3 million bags from a June estimate. “Although typically coffee plants can withstand periods of low rainfall from May to August without causing any irreversible losses, prolonged dryness especially in Sul De Minas, parts of Mogiana and Cerrado over the last three months has caused below average soil moisture and a negative impact on blossoming,” the trader said. Flowers usually turn into cherries containing the beans.



The decline in Brazil’s output in the 2021-22 season will drive the arabica market into a record deficit of 11 million bags, Volcafe said, citing an estimate calculated on a crop-year basis, which starts when harvesting begins in each of the countries, spanning longer than a year. Most coffee traders usually look at balances for the 12 months starting in October. Coffee demand fell by more than 4 million bags in six months due to the pandemic, with global demand contracting 0.6% in the season that ended Sept. 30, Volcafe forecasts. While consumption is expected to rebound 1.2% in the current season, that will still be below the 5-year average of 2.6%, according to the report. Robusta coffee, the type used in instant coffee that’s also more prevalent in retail packages, has gained a boost as people drink more at home. “We project the share of robusta usage to remain elevated into next season,” Volcafe said.

-- Needless to say I am back in and a scale down accumulator.

 

[MasterOfCoin]

(Bloomberg) -- The world’s largest coffee producer Brazil will likely see output of arabica beans, the type favored by Starbucks Corp., fall 33% next year as dry weather persists just as farmers increased pruning of trees. That’s the forecast of Volcafe Ltd., one of the world’s largest coffee traders. Brazil will probably harvest 34.2 million bags of arabica coffee next year, down from 51 million this year, the Winterthur, Switzerland-based trader said in a report to clients seen by Bloomberg. The “tentative” forecast comes after a preliminary crop survey, which was restricted by the pandemic.



Brazil’s output was already expected to drop next year after this year’s record crop and as arabica trees enter the lower-yielding half of a biennial cycle. But dry weather and increased pruning after blossoming failed in arabica areas of southern Minas Gerais, Cerrado and Mogiana exacerbated the declines, with Volcafe cutting its forecast by 3.3 million bags from a June estimate. “Although typically coffee plants can withstand periods of low rainfall from May to August without causing any irreversible losses, prolonged dryness especially in Sul De Minas, parts of Mogiana and Cerrado over the last three months has caused below average soil moisture and a negative impact on blossoming,” the trader said. Flowers usually turn into cherries containing the beans.



The decline in Brazil’s output in the 2021-22 season will drive the arabica market into a record deficit of 11 million bags, Volcafe said, citing an estimate calculated on a crop-year basis, which starts when harvesting begins in each of the countries, spanning longer than a year. Most coffee traders usually look at balances for the 12 months starting in October. Coffee demand fell by more than 4 million bags in six months due to the pandemic, with global demand contracting 0.6% in the season that ended Sept. 30, Volcafe forecasts. While consumption is expected to rebound 1.2% in the current season, that will still be below the 5-year average of 2.6%, according to the report. Robusta coffee, the type used in instant coffee that’s also more prevalent in retail packages, has gained a boost as people drink more at home. “We project the share of robusta usage to remain elevated into next season,” Volcafe said.

-- Needless to say I am back in and a scale down accumulator.

Thank You @TWI

It's nice to read an update on developments in coffee futures.

Thanks also to the Mod Team for cleaning up the thread by removing the spurious trashy comments that contributed little to developing the OP's informative observations.

 

[Forex 2020]

Coffee Futures Update January,24,2021
Coffee prices on Friday posted moderate losses and robusta fell to a new 1-week low. Forecasts for weekend rain in Minas Gerais, Brazil's largest arabica coffee growing region, undercut coffee prices on Friday. A rebound in ICE coffee inventories is another bearish factor for coffee prices. ICE-monitored arabica coffee inventories on Thursday rose to a 5-1/2 month high of 1.571 mln bags, recovering further from the 20-3/4 year low of 1.096 mln bags posted on October 5. Also, ICE-monitored robusta coffee inventories climbed to a 9-1/2 month high Thursday, rebounding from the 2-year low of 10,808 lots posted on October 14.
Robusta prices dropped to a new 1-week low Friday on negative carry-over from Thursday when Conab forecast Brazil 2021 robusta coffee production may increase as much as 16% y/y to 16.6 million bags.
Arabica was also under pressure Friday from weakness in the Brazilian real against the dollar. The real sold-off by -2.05% to a 1-1/2 week low against the dollar on Friday. A weaker real encourages export selling from Brazil's coffee producers. On Tuesday, Brazil's coffee cooperative Cooxupe said that it expects Brazil's 2021 arabica exports to jump +20% y/y to a record 6 mln bags.
Arabica has support after Conab, Brazil's national agricultural statistics agency, forecast on Thursday that Brazil’s 2021 arabica coffee production will slump -35.7% y/y to a 12-year low of 31.35 mln bags. Conab said coffee output would fall as Brazil's coffee trees are in the lower-yielding half of a biennial cycle and that insufficient rain in key stages of crop development is exacerbating the decline in yields.

Monday's data from CeCafe was bearish for arabica coffee after CeCafe reported that Brazil's total Dec coffee exports surged +38.6% y/y to a record 4.3 million bags with total Brazil 2020 coffee exports up +10% y/y to a record 40.4 mln bags.
Ample rain in Brazil benefits the country's coffee crop and is bearish for prices. Somar Meteorologia reported Monday that rain in Minas Gerais, Brazil's largest arabica-growing area, measured 116.4 mm in the past week, or 176% of the historical average.
Robusta coffee has support on Tuesday's projection from the Vietnam National Coffee Association that Vietnam coffee production will drop -10% to -15% this year due to natural disasters and lower investment resulting from low prices. Vietnam is the world's biggest producer of robusta coffee.
Last Friday, arabica coffee rallied to a 4-month nearest-futures high, and robusta coffee climbed to a 2-week high on concern that dry conditions in Brazil will worsen. Maxar last Thursday said that dry conditions would intensify across Minas Gerais, Brazil's largest arabica-growing region, over the next 6 to 10 days, which could cause strain to coffee trees and harm cherry growth.
Last Friday's data from the Green Coffee Association was supportive for coffee prices after U.S. Dec green coffee inventories fell -12.1% y/y to 5.978 mln bags.
In a supportive factor, Marex Solutions last Thursday estimated that Brazil's 2021 arabica coffee output would fall between 30% and 50% due to excessive heat and scant rainfall in Minas Gerais. However, in a negative factor for robusta coffee, Marex Solutions projected that Brazil's 2021 robusta crop would increase by 10% to 15% versus last year's harvest.

Coffee prices have support on last Tuesday's projection from Brazilian coffee trader Montesanto Tavares that Brazil's 2021 arabica coffee production will fall -37% y/y to 31.2 mln bags due to the lower-yielding half of the biennial cycle in Brazil's coffee tree production.
Increased global supplies are bearish for coffee prices. The International Coffee Organization (ICO) last Tuesday reported that Oct-Nov global coffee exports rose +6.5% y/y to 20.2 mln bags.
Big Picture Coffee Market Factors: World coffee production in 2019/20 (Oct/Sep) fell -1.6% y/y to 168.553 mln bags, with global consumption down -0.9% y/y at 167.592 mln bags (ICO). The world coffee surplus/deficit in 2019/20 shrank to a surplus of +961,000 bags from a surplus of +2.265 mln bags in 2018/19 (ICO). Brazil 2020 coffee exports rose +10% y/y to a record 40.4 mln bags (CeCafe).

 

[TWI]

I remain a buyer of dips. Lot of stocks for sure but they will be used and then the crop shortfall will send us higher. Demand has been painful due to lockdown but assuming we get back to coffee shops and restaurants re-opening in the next six months I think we are in for considerably higher prices. Main issue is that it is slow and boring and corrections are sometimes harsh. Better to await the sell-offs and pick up the arabicas when the price action looks dreadful and sit with it a while. Its a big contract so not easy unless it is a minor allocation for an account. No guarantees but I am playing it this way.

 

[TWI]

I am as of yesterday out of this trade. Quite a correction and better to try and get in again at lower levels.

 

[TWI]

Anybody else still long in Arabicas? There is a real problem with Brazilian supply so I am sticking with it. Been a tough one to hold but if you managed it then the returns have been excellent and well done.