The coffee price rout, which is seeing arabica futures flirt with bear market territory, looks poised to peter out, Rabobank said, signs of “surprisingly high” demand – although not by enough to fuel a revival in values.
New York-traded arabica coffee futures – which for March delivery stood at 142.65 cents a pound on Thursday, down 20% from a high a month ago – appear poised for “rangebound” trading for now, the bank said.
Futures will trade “between 132-152 cents a pound in the next couple of months,” Rabobank senior commodities analyst Carlos Mera said, noting that the “impressive” drop in arabica prices had cut their premium to London robusta futures to some 50 cents a pound, “which is what the fundamentals would suggest”.
Prices of robusta coffee have found some support from a poor global harvest, with dryness undermining output in Vietnam, Brazil and Indonesia, the top growers of the variety.
Rabobank pegged at 5.3m bags the world production deficit in robusta coffee in 2016-17, forecasting a further 2.4m-bag shortfall next season too, as a recovery in output in Brazil’s Rondonia and Bahia states is offset in part by a “very small drop” in the harvest from top-growing Espirito Santo.
However, Rabobank said that arabica prices may also “see some support from demand”, which had, to judge by available trade and stocks statistics, proved “impressive” in the July-to-September period.
Indeed, disappearance rose by 1.2% year on year in the European Union, 3.6% in Japan and by 7.1% in the US, “quite impressive for such mature markets”.
“Disappearance has been particularly strong in Russia, South Korea, Taiwan and Canada,” Mr Mera said.
While the growth could be in part down to statistical anomalies, or one-off stockbuilding by new factories, the bank raised by 400,000 bags, to 154.7m bags, its estimate for world coffee consumption in 2016-17.
The estimate for 2017-18 demand, published only two weeks ago, was raised by 500,000 bags to 157.9m bags.
Four successive shortfalls
The revisions, combined with some alterations to production estimates, left Rabobank’s forecast for the world coffee production deficit this season (including both arabica and robusta beans) at 3.4m bags, an upgrade of 600,000 bags from the previous figure.
For 2017-18, the world output deficit was pegged at 2.5m bags, widened by 500,000 bags.
A further output shortfall in 2017-18 would represent a fourth successive season of deficit, during which production has undershot consumption by an aggregate 11.5m bags, on Rabobank estimates.
Nonetheless, the bank cautioned over potential price pressure ahead should Colombian harvest data continue to come in strong, after November’s output, at 1.65m bags, hit an 18-year high.
“If December production also comes in as high, we may see the start of either another leg in the bear market or collapsing differentials for milds,” the bean type that Colombia produces.
(Source – http://www.agrimoney.com/news/coffee-price-rout-to-fade-rabo-says-noting-impressive-demand–10244.html)