ICO reports coffee prices diverge in April while volatility rises

In its newest report, the International Coffee Organisation (ICO) reported that the volatility of all coffee group indicators grew in April 2020. Global exports fell by 3.7% to 11.06 million bags in March 2020 and shipments in the first six months of coffee year 2019-20 decreased by 3.9% to 61.96 million bags. In coffee year 2019-20, ICO revised the global coffee consumption estimate to 166.06 million bags, which represents an increase of 0.5% compared with 165.27 million bags in 2018-19. As a result, production is expected to exceed consumption by 1.95 million bags.

In April 2020, the ICO composite indicator averaged 108.91 US cents/lb, 0.1% lower than in March. After reaching a high of 113.86 US cents/lb on 15 April, the daily indicator price declined over the next two weeks and reached a low of 103.63 US cents/lb on 27 April. Concerns over disruptions to the supply chain are being weighed against the uncertainty over the future of demand in this unprecedented situation.

Prices for both Mild Arabica group indicators trended upwards in April 2020. Other Milds rose by 4.2% to 154.52 US cents/lb, and Colombian Milds by 1.8% to 161.92 US cents/lb. As a result, the differential between Colombian Milds and Other Milds narrowed by 30.6% to 7.40 US cents/lb. In contrast, prices for Brazilian Naturals fell by 1.5% to 111.22 US cents/lb, resulting in a price differential of 50.70 US cents/lb from Colombian Milds and 43.30 US cents/lb from Other Milds. Robusta prices also fell in April 2020, averaging 63.97 US cents/lb, 5.2% lower than in the previous month. This also represents the lowest monthly average for Robusta prices since June 2006 when it reached 60.23 US cents/lb.

The New York Arabica futures market fell by 0.5% to an average of 115.55 US cents/lb in April 2020, while the London Robusta futures market declined by 5.2% to 54.4 US cents/lb. As a result, the spread between Arabica and Robusta coffees, as measured on the New York and London futures markets, increased to 61.15 US cents/lb, which is 4.2% higher than in March. Certified Arabica stocks decreased by 7.9% month-on-month to 2.11 million bags in April 2020, which is the third consecutive month of decline.

The volatility of the ICO composite indicator increased by 1 percentage point to 10.6% over the past month, marking a second consecutive month of increased volatility. The volatility of all group indicators grew in April 2020. Other Milds rose by 1.4 percentage points to 12.9%, Brazilian Naturals by 1.1 percentage points to 14.2% and Colombian Milds by 0.6 percentage points to 11.1%. The Robusta group indicator volatility was 4.8%, an increase of 0.3 percentage points from March 2020.

Global exports in March 2020 totalled 11.06 million bags, 3.7% lower than the 11.49 million bags shipped in March 2019. Exports in the first half of coffee year 2019-20 reached 61.96 million bags, down by 3.9% compared to 64.5 million bags for the same period in 2018-19. In October 2019 through March 2020, shipments of Arabica fell by 7.8% to 38.6 million bags while Robusta shipments increased by 3.2% to 23.36 million bags.

Shipments from Brazil in March 2020 rose by 0.2% to 3.12 million bags, due to the sharp rise in prices for Brazilian Naturals that month as well as the depreciation of the Brazilian real against the US dollar. Its exports in the first six months of coffee year 2019-20 fell by 10.9% to 19.6 million bags, due largely to a smaller output of Arabica, which is in the off year of its biennial cycle. However, its shipments in crop year 2019-20, which ended in March 2020, reached 40.11 million bags, 6% higher than in 2018-19. Much of the growth in exports occurred in the first half of its crop year from sales of stock from its record harvest in 2018-19. Additionally, shipments of green Robusta grew by 40.5% to 4.1 million bags while exports of Arabica rose by 2.8% to 31.97 million bags. After a decline in 2017-18, shipments of soluble coffee have grown over the past two crop years, increasing by 5.5% to 4.01 million bags in crop year 2019-20.

In March 2020, Vietnam’s exports fell by 2% to an estimated 2.5 million bags. Its shipments in October 2019 to March 2020 declined by 3.7% to 13.65 million bags compared to the same period one year ago. The sustained losses in Robusta prices this season has likely discouraged farmers from selling their coffee.

Colombia’s exports in March 2020 fell by 20.9% to 903,000 bags. Their exports in the first six months of coffee year reached 6.81 million bags, 4.7% lower than in the first half of coffee year 2018-19. The decline in exports is attributed mostly to the fall in output in the second quarter of coffee year 2019-20. Production in the first six months of 2019-20 is estimated at 7.41 million bags according to the National Federation of Coffee Growers in Colombia (FNC), which is 6.1% higher than in the same period for 2018-19. However, this growth occurred in the first quarter of coffee year 2019-20, when output increased by 24.1% to 4.56 million bags while production in the second quarter decreased by 13.8% to 2.86 million bags. The lower volumes of Colombian coffee supported higher prices for Colombian Milds in March 2020, despite the depreciation of the Colombian peso against the US dollar.

Indonesia’s exports were 11.9% higher in March 2020 at 532,000 bags. Its shipments in the first six months of coffee year 2019-20 reached 3.12 million bags, 54.1% higher than in the same period for 2018-19, though output was significantly lower that season. Indonesia’s exports for crop year 2019-20 (April-March) are 60% higher, reaching 7.55 million bags, compared to 4.72 million bags last year. Compared to the previous two crop years, exports of soluble coffee more than doubled to 2.78 million bags.

Shipments from Honduras declined by an estimated 7% to 750,000 bags in March 2020. Its exports in October 2019 to March 2020 decreased by 2.3% to 2.75 million bags. In coffee year 2019-20, January was the only month in which its exports were higher than the previous year. Continued low prices, and for some farmers below the cost of production, as well as drought on some farms have impacted output this season after several years of strong growth.

Imports by major importing countries totalled 40.56 million bags in the first four months of coffee year 2019-20, which is 9.4% lower than in October 2018 to January 2019. Imports of all forms of coffee by major importing countries fell during this period. Green coffee imports fell by 3.7% to 31.73 million bags. Processed coffee imports, which accounted for 21.8% of the total also decreased. Roasted coffee fell by 22.5% to 5.39 million bags and soluble coffee by 28.8% to 3.44 million bags.

In January 2020, imports for the major importing countries decreased by 25.2% to 8.71 million bags compared to their imports in January 2019. This follows larger than expected imports by the European Union and the United States in coffee year 2018-19. Additionally, the sudden rise in prices from late November through December 2019 is likely to have encouraged importers to delay further purchases. While consumption in 2018-19 rose by 4.9% for Europe and 5.7% for North America, imports in the first four months of coffee year 2019-20 indicate that demand growth is not likely to continue at this rate, but instead would have been closer to the long-term average. However, the import data covers the period just prior to the spread of covid-19, and the impact of the pandemic now presents considerable downside risk to consumption growth in 2019-20.

In 2019-20, world coffee consumption is estimated at 166.06 million bags, an increase of 0.5% on 2018-19. Many countries have suspended non-essential activities and instituted social distancing measures, which have negatively impacted out-of-home coffee consumption. Additionally, job losses could lower demand, particularly for non-habitual consumers. As a result of the revision, production is now estimated to exceed consumption by 1.95 million bags in 2019-20. Output from 2019-20 is unchanged as much of the harvesting occurred before the global pandemic. Instead, the impact on production is more likely to be seen in the 2020-21 coffee year, for which harvesting has already begun for countries like Brazil where the crop year begins in April.

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