Fundamental pressure remains with coffee global surplus

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After six trading sessions in a row with falling prices, coffee rallied on ICE Futures US and had good gains on Wednesday (17). The September 2020 contract is trading at 98.15 cents per pound. Signs of overselling, after a long sequence of losses, justify the price reaction, but even with a 2.55% high, arabica remains below the level of 100 cents in New York. So, it consolidates a new level of performance. The pressure from the advancement of Brazil’s record crop along with the USDA’s global surplus projections underpin this market behavior.

The USDA’s biannual report confirms the record world production of 176.10 million 60-kg bags in 2020/21, supported basically by the Brazilian productive performance. Brazil’s output must grow 15% and reach 67.90 million bags, according to USDA. Colombia, after stability for the last two seasons, must grow again and, with that, recover the level of 14 million bags. Positive highlights also on Uganda (+13%), Honduras (+9%), and India (+6%).

Vietnam, on the other hand, suffered from climatic problems due to lack of rain and far-above-normal temperatures. Thus, the forecast is for a crop of 30.2 million bags, down 4% from the previous season. Indonesia is also expected to reduce production to 10.30 million, down 4%. In this scenario, the robusta supply must grow only 1.6%, driven by Brazil and India. Arabica must increase its share in the global supply, accounting for 58% of the total.

World production is expected to grow 5.5% in 20/21, but consumption must be much more modest, advancing only 1.4% (pandemic effect). In this scenario, the global coffee supply surplus must reach 9.80 million bags, a volume similar to that obtained in the 18/19 season.

World coffee exports must grow 4.2%, mainly driven by the Brazilian performance. However, this good external flow will not be enough to sell the entire production. In view of this, stocks held by growers will likely jump, growing 18% to 41.48 million bags. As a result, the stock-consumption ratio is close to 25% again, easing the global supply.