coffee supply and demand

COFFEE
SUPPLY AND DEMAND
QUARTERLY REPORT
NOVEMBER 2013
SUPPLY AND DEMAND
QUARTERLY REPORT
NOVEMBER 2013
With the arabica market starting to trade below the
cost of producing coffee even on some high- yielding
Brazilian mechanised farms, the question of supply
response to low prices becomes an urgent one.
Brazilian production nodes for 2014 (grown FH
2013) had already benefitted from last year’s
fertilizer application. Weather in the last three
months has been almost perfect for flowering, fruit
setting and crop development on those nodes.
However, we may now see a drop-off in fertilization,
and decisions to prune (esqueletar) more trees for
zero safra to avoid harvesting costs of lower-yielding
farms, in a low price environment.
Another important factor is the number of trees
planted or renovated through the high-price period
which are now coming into production. Many of
Colombia’s renovated trees are having a strong first
crop now or in the coming months. In particular,
trees recently planted in new areas of Peru,
Honduras, and even China will also bear fruit now
and in the 2014 crop.
The 86 mio bags of arabica supply in 2013/14 is
similar to 2012/13 production, and is forecast to
grow to 89 mio bags in 2014/15 as Brazil, Colombia
and Honduras together produce over 3 mio bags
more arabica. All in all, the “coffee lag” (the delayed
response of supply to price) is very much evident.
The lack of inputs and pruning will have some
negative effect on other arabica farms in 2014/15 in
the above origins, and also in those origins which did
not plant new area or renovate at all. We have to
‘
look to 2015/16
production before we see the real
consequences of arabica price trading below costs of
production.
Robusta is not yet trading below the average cost of
production. We see a record robusta crop of 28.8
bags being harvested in Vietnam in 2013/14, and we
expect for now a record conillon crop come
2014/15. Brazil and Vietnam are on opposite
biannual cycles, thus overall robusta supply hovers
around 69 mio bags in 2013/14 and 2014/15
respectively.
market share between roasters, or between price
points within a roaster’s range) is famously rather
inelastic in traditional markets. We see Western
Europe with continuing stable demand, and the US
showing demand growth derived from demographic
change and new ways of drinking coffee. Nontraditional markets are another story. Any change in
price has a marked effect on consumption at this
point on the curve. These markets, particularly Asia,
are robusta markets. The robusta price has not
plunged on the same scale that arabica has, nor do
we expect it to do so. Demand in non-traditional
coffee markets should receive a boost from slightly
lower robusta prices, but rates of growth are not
excessive, and somewhat balanced by a economic
deceleration in these economies.
PRODUCTION
Brazil:
The internal price for good-cupping running lots is
trading in the mid-200 BRL per bag range, similar to
the range it held from 2004 to 2009. There is a larger
than normal premium for fine cup coffees, as
farmers are just not yet offering them in volume. Rio
running lots are trading around 170 BRL/bag, and
many farms produced a lot of this quality this year.
The mechanization of labour costs and the growth in
agricultural yields in many Brazilian farms has helped
to flatten the growth of the cost of production
compared to the growth in costs in other countries.
Many farms on a productive on-cycle are still making
money. Nevertheless, the average cost of production
in Brazil is above the market price, an unusual
sensation for the world’s largest producer of coffee.
Export diffs are steady, and even the premium of
fine cup over good cup is stable. Exports from Brazil
are finally picking up, with 3+ mio bags exported in
October and expected in November.
450
Sul de Minas Rainfall
400
350
10 year average
300
mm
FOCUS
2013 until Nov 23rd
250
200
150
100
The response of overall coffee demand to price (ie.
not referring to discount offers which switches
50
0
Jan
Feb
Mar
Apr May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
SUPPLY AND DEMAND
QUARTERLY REPORT
NOVEMBER 2013
16
14
Vietnam:
After a very active October, reflecting a large farmer
carryover of old crop and early pickings of new crop,
the internal market has thinned out in November, due
to rainy weather and lower prices.
30
Vietnam Coffee Exports
25
2010/11
2011/12
20
28.2
24.9
23.6
19.5
mio bags
2012/13
15
2013/14 forecast
10
8
6
4
The Brazilian real is having a volatile time, with US
monetary policy as much of an influence as domestic
fiscal accounts. The trend seems to be weaker, giving
farmers some breathing space, but time will tell.
We are only days into our month-long first crop survey
for the 2014/15 crop, and any updates will be
presented in the new year.
Colombian Production Recovery
12
mio bags
Market share of Brazilian arabica is being reclaimed
from robusta in importing countries, to the tune of 0.5
to 1.0 mio bags, but there is also new importing
country demand to be serviced. Internal consumption
of arabica grows by 1 mio bags, taking internal share
away from conillon.
2
0
Antioquia are reported to be down 30% and 18% in
2013 compared to 2012.
At current price levels, Colombian coffee farmers are
receiving a subsidy of just over 40 cts/lb. Congressional
and presidential elections are approaching in March
and May of next year. The budget for the coffee
subsidy in 2013 was the equivalent of US$ 500 mio,
while a budget for 2014 still needs to be clarified.
Important resources have been set aside to meet
government commitments post-agro-strikes, but the
specific allocation per agro-sector needs to be defined.
With more coffee production, a larger budget is
needed to maintain the same subsidy program. The
National Coffee Congress is held this week in Bogota.
Colombian farmers aren’t being helped by a weak
currency; the peso has been holding its value
compared to the Brazilian real, as strong oil exports
have dampened the shock of Fed tapering news.
5
0
Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep
The current robusta crop is a record, at an estimate of
28.8 mio bags. Average agricultural robusta yield is 47
bags per hectare. The current arabica crop is the
largest Vietnam has produced, at 1.2 mio bags, at an
average yield of 27 bags per hectare.
Finalizing the 12/13 statistical balance, green exports
were 23.3 mio bags, soluble exports were 0.3 mio bags
green bean equivalent, internal consumption was 1.7
mio bags. Total carryover stocks were unchanged, but
HCM stocks fell by 1.7 mio bags through the year,
while farmer stocks increased by the same amount
through the season.
Colombia:
The Colombian internal market has seen a great deal
of coffee in recent weeks. We are expecting a 10 mio
bag crop for 13/14, and another good crop in 14/15,
as replanted area produces again. However,
fertilization needs to be observed carefully. Fertilizer
sales in the top producing departments of Huila and
Peru:
Exports are down 9% from April-September to 2.1 mio
bags. We estimate that the 13/14 crop is actually up
6% due to an on-cycle (although not a full potential
on-cycle due to the effect of rust). Peru is exporting
much less coffee to Colombia this year on an official
basis; instead coffee is finding its way over the border
unofficially. Peruvian official green exports to
Colombia as reported by customs are less than a third
of the normal flow.
6
Peru Coffee Exports
5
2011/12
mio bags
10
4
2012/13
3
2013/14 forecast
4.9
4.1
3.9
2
1
0
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
SUPPLY AND DEMAND
QUARTERLY REPORT
NOVEMBER 2013
Indonesia:
II. COFFEE DEMAND
The robusta season is finishing in Sumatra, with
exports from Panjang running at 4.1 mio in the six
months from May until October. The arabica season
now begins in the north of the island – and the crop is
not flowing too well. Internal differentials have skyrocketed.
Arabica demand grew by 0.9 mio bags in 12/13, and is
forecast to grow by 3.3 mio bags in 13/14. Robusta
demand grew by 3.7 mio bags in 12/13, and is forecast
to grow by 0.6 mio bags in 13/14.
Honduras:
Despite low prices, Honduras continues to plant coffee
this year. We believe that Honduras will produce 4.1
mio bags of coffee in 2013/14, a volume well below
potential, as the country has had to deal with the
effects of rust. When renovated area becomes
productive, and the new area begins to bear fruit,
Honduras should again be on track to be much larger
coffee origin than it ever has been.
China:
Area was planted in 2010 and even more in 2011 and
2012. A lot of older area is in an off-cycle productive
year, but this is cancelled out by the new plantings
coming into production. We estimate Chinese
(arabica) production in 13/14 at 1.4 mio bags, which
should increase next year.
Ethiopia:
The Ethiopian domestic market has competed strongly
with the export market for sun-dried coffees in recent
months. Export differentials for Djimmahs, Sidamo 4s
and Lekemptis have firmed to a premium over the ‘C’
market for the first time in twelve years. The growing
domestic population is an eager alternative buyer to
the export market of unwashed coffees, especially at
below 120 cts/lb outright.
50
bags per ha
40
30
20
10
0
The Brazilian and the Western European markets
show the biggest swings in robusta/arabica
substitution in their blends, depending on price.
Arabica demand fell in both these markets in 2012. In
the USA on the other hand, although robusta “share”
of the blend increased in 2012, arabica demand
continued to grow.
Total coffee demand in the USA was very stable
around 21.0 mio bags green bean equivalent from
2006 to 2010. However since then, coffee
disappearance has climbed every year, reaching 23.0
mio bags in the 12/13 coffee year. This could be
because of demographic change (including increased
adult immigration), but it also coincides with the
growing consumption of single serve coffees. In the
North America market, sales of single serve portions
quadrupled from 2010 until 2013. There are many
new competitors in the single serve market in 2013,
and more and more people are using this as their main
way of drinking coffee.
III. BALANCES AND STOCKS
Global coffee stocks increased by 6.7 mio bags to 48.7
mio bags through the 2012/13 coffee year. We
forecast that they again climb by 6.0 mio bags to 54.7
mio bags by the end of 2013/14, the highest nominal
level of stocks in ten years. Depending on the fate of
the 2014 Brazil crop, it is likely that global stocks
increase again the following 2014/15 season.
Average Agricultural Yield 2013
Arabica consumer stocks rose by 1.6 mio bags through
2012/13, of which 0.6 mio bags was ICE-certified
stock-build. Robusta consumer stocks were overall
unchanged, but Liffe-certified stocks fell 1.1 mio, while
non-certified consumer stocks rose. Brazil origin
stocks rose 5.5 mio bags through 2012/13, as
supported by the CONAB warehouse survey, while
other arabica origin stocks fell 0.4 mio bags, and
robusta origin stocks were unchanged overall. Most of
the global surplus in coffee will be held in Brazilian
domestic warehouses, not so visible to the market, if
in strong financial hands.
SUPPLY AND DEMAND
QUARTERLY REPORT
NOVEMBER 2013
PRODUCTION BY COUNTRY
mio 60kg bags
PRODUCTION BY TYPE
2011/12
2012/13
2013/14
2014/15
2011/12
2012/13
2013/14
2014/15
Brazil
Vietnam
Colombia
Indonesia
India
Peru
Honduras
Ethiopia
Mexico
Guatemala
Uganda
Côte d’Ivoire
Costa Rica
El Salvador
Nicaragua
China
Tanzania
Others
48.0
28.0
7.0
6.2
6.0
5.1
5.7
4.8
4.3
3.6
2.8
2.0
1.7
1.3
2.0
1.0
0.6
10.5
56.8
25.3
8.5
11.7
5.7
4.3
4.6
5.1
4.5
3.8
3.7
1.7
1.7
1.2
1.8
1.2
1.1
10.8
57.2
30.0
10.0
11.2
4.9
4.6
4.1
4.9
4.2
2.7
3.7
1.9
1.4
0.9
1.4
1.4
0.9
10.5
60.0
28.0
11.0
9.8
5.7
4.3
5.0
4.9
4.2
3.0
3.7
1.9
1.4
1.1
1.4
1.6
1.0
10.7
mio 60kg bags
Arabica
Brazil
Colombia
Ethiopia
Peru
Honduras
Mexico
Guatemala
India
Others
78.1
32.3
7.0
4.8
5.1
5.7
3.2
3.6
1.9
14.4
85.6
39.3
8.5
5.1
4.3
4.6
3.3
3.8
1.8
14.8
85.6
40.7
10.0
4.9
4.6
4.1
3.0
2.7
1.6
14.0
89.0
41.5
11.0
4.9
4.3
5.0
3.0
3.0
1.8
14.6
Robusta
Vietnam
Brazil
Indonesia
India
Uganda
Others
62.1
27.2
15.7
5.2
4.1
2.0
8.1
66.9
24.6
17.5
10.2
3.9
2.8
7.9
69.4
28.8
16.5
9.8
3.3
2.9
8.1
68.6
26.8
18.5
8.3
3.9
2.9
8.2
TOTAL
140.3
152.5
155.0
157.6
TOTAL
140.3
152.5
155.0
157.6
CONSUMPTION BY REGION
mio 60kg bags
CONSUMPTION BY TYPE
2011/12
2012/13
2013/14
2014/15
EU27
40.7
41.0
41.0
41.0
Other Europe
8.3
8.5
8.6
8.8
USA & Canada
25.8
26.3
27.0
27.7
Asia
28.6
31.2
33.1
34.7
Africa
8.6
8.8
9.3
9.6
Latin America
28.5
29.3
30.0
30.6
Incremental Volume
3.9
4.6
3.9
3.4
3%
140.5
3%
145.1
3%
149.0
2%
152.4
growth
TOTAL
BALANCE BY TYPE
mio 60kg bags
2011/12
2012/13
mio 60kg bags
2011/12
2012/13
2013/14
2014/15
growth
Total Robusta
By Importers
By Coffee Producers
15%
62.9
36.1
26.8
6%
66.6
36.5
30.1
1%
67.2
35.9
31.3
2%
68.3
35.5
32.8
growth
Brazil Arabica
By Importers
By Coffee Producers
-13%
33.7
24.6
9.1
0%
33.6
25.9
7.8
9%
36.8
27.9
8.8
4%
38.1
29.1
9.0
growth
Non-Brazil Arabica
By Importers
By Coffee Producers
1%
43.9
37.0
6.9
2%
44.9
37.7
7.2
0%
45.0
37.6
7.4
2%
46.0
38.3
7.7
TOTAL
140.5
145.1
149.0
152.4
STOCK CHANGE THROUGH SEASON
2013/14
2014/15
mio 60kg bags
2011/12
2012/13
2013/14
2014/15
Robusta Balance
-0.8
0.3
2.2
0.3
Robusta Stock Change
-2.5
-0.0
2.2
0.3
Production
62.1
66.9
69.4
68.6
in consumer port
-4.2
-0.1
2.2
0.3
Consumption
62.9
66.6
67.2
68.3
in origin location
1.7
0.0
0.0
0.0
Brazil Arabica Balance
-1.4
5.7
3.9
3.4
Brazil Arabica Stock Change
-2.0
5.9
3.9
3.4
Production
32.3
39.3
40.7
41.5
in consumer port
-0.1
0.3
0.7
-0.1
Consumption
33.7
33.6
36.8
38.1
in origin location
-1.9
5.5
3.2
3.5
Non-Brazil Arabica Balance
1.9
1.4
-0.1
1.5
Non-Brazil Arabica Stock Change
1.5
0.9
-0.1
1.5
Production
45.8
46.3
44.9
47.5
in consumer port
1.4
1.3
-0.1
1.5
Consumption
43.9
44.9
45.0
46.0
in origin location
0.1
-0.4
0.0
0.0
Total Arabica Balance
0.6
7.1
3.8
4.9
Total Arabica Stock Change
-0.5
6.7
3.8
4.9
Production
78.1
85.6
85.6
89.0
in consumer port
1.3
1.6
0.6
1.4
Consumption
77.6
78.5
81.8
84.1
in origin location
-1.8
5.1
3.2
3.5
TOTAL
-0.2
7.4
6.0
5.3
Total
-3.0
6.7
6.0
5.3
SUPPLY AND DEMAND
QUARTERLY REPORT
NOVEMBER 2013
DEMAND BY REGION
IMPORTING DEMAND BY TYPE
45
50
EU27
40
45
ASIA/OCEANIA
mild arabica
35
40
LATIN AMERICA
mio bags
mio bags
NORTH AMERICA
25
36.4
36.1
30
35
30
25
goo
30.0
29.9
29.6
20
15
35.5
35.1
36.4
34.5
37.0
36.1
33.0
32.4
31.6
31.9
31.1
27.7
23.0
20
10
21.3
37.6
36.5
35.9
38.4
38.3
31.9
27.7
28.0
37.0
35.5
robusta
29.9
29.1
27.9
brazil arabica
25.9
24.6
22.5
22.2
22.1
32.0
25.6
24.5
AFRICA
37.7
35.8
35.4
35.1
34.6
34.2
30.9
37.1
19.2
OTHER EUROPE
5
15
0
17.2
15.4
10
1999/00
2001/02
2003/04
2005/06
2007/08
2009/10
2011/12
2013/14
2015/16
1999/00
2001/02
2003/04
2005/06
TOTAL SUPPLY/DEMAND BALANCE
15.0
2011/12
2013/14
2015/16
165
60
155
50
11
5.0
11
10
6
8
40
145
Robusta Origin
9
10
7
6
135
-5.0
mio bags
0.0
mio bags
5
30 6
15
20
125
5
-10.0
-15.0
9
-
105
2
11
10
9
5
10
5
11
13
14
11
7
7
8
8
3
3
5
13
7
7
11
11
7
5
5
10
5
6
9
5
9
2
2
3
11
13
13
6
12
8
3
3
3
3
20
2
13
Brazil Origin
Robusta Consumer
7
5
8
8
10
5
11
13
10
11
9
3
3
3
4
4
7
12
4
5
16
7
10
Milds Origin
4
Milds Consumer
Brazil Consumer
End End End End End End End End End End End End End End End End
99/00 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15
02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15
ARABICA PRICE VS STOCK/DEMAND RATIO
300
5
5
10
115
10
9
11
21
12
4
10
6
ROBUSTA PRICE VS STOCK/DEMAND RATIO
30
4000
28
3500
22
250
20
26
24
2000
16
1500
100
18
16
50
14
1000
price, quarterly average
price, quarterly average
14
500
12
0
stocks, expressed in weeks of demand
stocks, expressed in weeks of demand
Sep 14
Sep 12
Sep 10
Sep 08
Sep 06
Sep 04
Sep 02
Sep 00
Sep 98
Sep 96
10
Sep 92
Sep 14
Sep 12
Sep 10
Sep 08
Sep 06
Sep 04
Sep 02
Sep 00
Sep 98
Sep 96
-
Sep 94
12
weeks of demand
2500
USD/TONNE
20
18
weeks of demand
22
150
Sep 92
cents/lb
200
3000
Sep 94
mio bags
2009/10
GLOBAL STOCKS
balance
supply
demand
10.0
2007/08
SUPPLY AND DEMAND
QUARTERLY REPORT
NOVEMBER 2013
NEW YORK ARABICA AND LONDON ROBUSTA: SPOT MONTH CONTINUATION
NEW YORK ‘C’ ARABICA - LONDON LIFFE ROBUSTA: ARBITRAGE 1ST MONTH - 1ST MONTH
BRAZIL BM&F ARABICA – NEW YORK ‘C’ ARABICA: ARBITRAGE 1ST MONTH – 2ND MONTH
SUPPLY AND DEMAND
QUARTERLY REPORT
NOVEMBER 2013
DIFFS SUNDRIED ETHIOPIA VS BRAZIL 2003-2013
40
40
20
20
0
0
cts/lb FOB vs. ‘C’
cts/lb FOB vs. ‘C’
DIFFS BRAZIL 2003-2013
-20
-40
-40
primeiro
ethiopia djimmah 5
brazil primeiro
fine cup mtgb
-60
-20
-60
washed
-80
-80
Nov 03
Nov 05
Nov 07
Nov 09
Nov 11
Nov 03
Nov 13
DIFFS COLOMBIA 2003-2013
50
excelso
40
100
supremo
30
60
40
20
Nov 11
Nov 13
costa rica hb
guatemala hb
honduras hg
20
10
0
-10
0
-20
-20
-30
Nov 05
Nov 07
Nov 09
Nov 11
Nov 03
Nov 13
DIFFS ROBUSTA 2003-2013
800
Nov 05
Nov 07
Nov 09
Nov 11
Nov 13
DIFFS AFRICA/ASIAN ARABICA 2003-2013
250
vietnam gII
kenya ab faq
ethiopia sidamo 2
indo ek80
600
200
png y-grade
uganda scr 15
150
cts/lb FOB vs. ‘C’
400
USD FOB vs. Liffe
Nov 09
salvador hg
cts/lb FOB vs. ‘C’
cts/lb FOB vs. ‘C’
80
200
china g1 simao
50
-200
0
-400
tanzania ab south
100
0
Nov 03
Nov 07
DIFFS CENTRALS 2003-2013
120
Nov 03
Nov 05
-50
Nov 05
Nov 07
Nov 09
Nov 11
Nov 13
Nov 03
Nov 05
Nov 07
Nov 09
Nov 11
Nov 13