Robusta Shortfall Drives Coffee Market To 21-Month High

Posted On: 11/17/2016

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TAGS: office coffee service, International Coffee Organization, ICO composite indicator price, coffee market, coffee prices, Brazilian crop, arabica biennial cycle

LONDON -- The monthly average of the International Coffee Organization's composite indicator price reached its highest level since January 2015, according to the ICO's recent monthly report. The daily price increased consistently over the course of the month, from $1.36 a pound to $1.50 per pound. This is the highest monthly increase since March 2016.

ICO said the market has been largely driven by the ongoing concerns over robusta supply, as well as growing speculation over the size of the 2017-18 Brazilian crop, as arabica will be going into an "off year" in its biennial cycle.

The Brazilian real has also been appreciating against the U.S. dollar, reaching its strongest level for more than a year, which has helped to support the market, according to ICO.

The strongest performance among the ICO's group indicators was recorded in robustas, which increased by 7% compared with September. This is the eighth consecutive monthly increase, with Robusta prices now up by nearly 40% since the beginning of the calendar year, averaging above $1 per pound for the first time since November 2014.

The three ICO arabica groups also increased by between 1.5% and 2.2%. The arbitrage between Arabica and robusta therefore narrowed compared to last month, but remains wider than a year ago. Total exports in September came to 9 million bags, 1.1% higher than last year.

Shipments from Brazil were down by 21.5% to 2.5 million bags, with exports of green robusta from Brazil down by more than 90%. Brazil's robusta production is primarily used to supply the domestic soluble industry, but a lack of rainfall and reduced output has squeezed the market, with local prices of robusta briefly surpassing arabica.

In Vietnam, on the other hand, exports increased in September, estimated by ICO to be up by 61.7% to 2 million bags, which would represent the highest September export volume on record, according to the report.

With coffee year 2015-16 now at its end, the ICO said that exports for the year are down by 0.7% to 111.8 million bags. This is the second consecutive year in which exports have declined, following the record volumes set in each of the four previous years.

Exports of the three arabica groups all increased year over year, with shipments of Colombian milds (wet-processed arabica coffee), other milds and Brazilian naturals up by 1.1%, 5.5% and 2.6% respectively. Robusta exports were down by 6.9% to 40.8 million bags.

However, ICO said that exports of green coffee by the largest robusta producer, Vietnam, actually increased by 8.1% to 22.3 million bags. However, this estimate only covers coffee that has been physically shipped, not coffee that has been cleared by customs. This increase by Vietnam was outweighed by lower green robusta exports from Indonesia, down by more than 25% for the coffee year, and Brazil, lower by more than 72%.

Brazil's green Arabica exports increased compared with last year by 2.4% to reach 29 million bags, slightly lower than the 2013-14 peak of 29.5 million. Higher shipments were also recorded by several other Arabica-producing countries. They are Honduras (+2.4%), Guatemala (+4.2%), Ethiopia (+7.1%), Nicaragua (+7%) and India (+21%); Colombia was mostly unchanged.

The ICO said that the significant increase of 42.9% by Peru suggests that output is starting to recover from the coffee leaf rust outbreak that affected the last two crops. However, green exports from Mexico are down by 3.9% as rust continues to be an issue.