Coffee, which entered a bull market last week, may climb further this year amid increasing concern that global supply will continue to shrink because of El Nino-induced crop losses in South America and Southeast Asia, according to traders and analysts at an industry gathering.
Worldwide demand may exceed output by as many as 4 million bags in the season that will start October 1 in most countries, following a 4.8 million-bag deficit in the current crop year, according to Miami-based merchant Coex Coffee Group (a bag weighs 132 pounds, or 60 kilogrammes). Inventories in Brazil, the largest grower, will be the lowest in 15 years by June 30, according to local exporter Tristao Trading Co.
"The world’s supply is very tight, fragile," Coex Managing Director Ernesto Alvarez said in an interview during the National Coffee Association’s three-day conference in San Diego, which concluded Saturday.
Arabica coffee for May delivery was down 2.1 per cent at $1.3155 a pound Monday in New York trading, after three straight weekly gains through March 18 that saw an advance of more than 20 percent from a January closing low, meeting the common definition of a bull market.
The rally in recent weeks is a turnaround for coffee, which had been dogged in preceding months by the strength of the dollar against other currencies, in particular the Brazilian real and the Colombian peso, spurring bumper exports from those countries. But that export bonanza has proven to be temporary, according to Alvarez, with inventories at origin now shrinking just a global demand advances to an all-time high.
Meanwhile, a lack of rainfall has reduced yields for robusta coffee in Brazil, threatening yields for Vietnamese and Indonesian growers and cutting output in Colombia. Arabica stockpiles at warehouses monitored by ICE Futures U.S. in New York are at a four-year low and are headed for a 10th straight quarterly decline.
Among other news from the San Diego conference:
Mexico, which mostly exports to the US, is set to collect the smallest crop in 53 years and import a record quantity because of damage from leaf rust, a fungal disease, said Eduardo Esteve, a vice president at trader Ecom Agroindustrial Group. Drought may affect Colombian yields for the next two years, cutting farm incomes this year by as much as $200 million, said Roberto Velez, head of the Colombia’s National Federation of Coffee Growers. "The truth is starting to come out" that supplies are shrinking, especially in Brazil, as coffee trees have been stressed for the past three years, Dub Hay, co-founder and partner at research company Intelligent Coffee Insights, said in an interview. Supply and demand this year will be "much tighter than many people believe." Ecom also said in a presentation that world supply and demand may be "balanced" in 2016-17 and that Brazil will reap a record crop, but it’s still concerned about robusta yields in the country. Renewed weakness in the real could limit the upside for coffee prices, said Julio Sera, risk-management consultant at INTL FCStone in Miami. "ICE stockpiles will not revert trend unless cash prices rebound."
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