LONDON, UK – The ICO composite indicator continued to climb in January 2021, averaging 115.73 US cents/lb, 0.9% higher than last month. According to ICO’s coffee monthly report, prices for all Arabica indicators rose in January, while Robusta prices decreased by 1.8% to 70.71 US cents/lb. Exports in the first three months of coffee year 2020/21 were 31.59 million bags, 6.1% higher than in October to December 2019. In coffee year 2020/21, global production is estimated to rise by 1.9% to 171.9 million bags with Arabica production growing by 5.2% to 101.88 million bags.
World coffee consumption is projected to increase by 1.3% to 166.63 million bags in 2020/21 as social distancing measures remain in place, limiting out-of-home consumption, and the global economy slowly recovers.
While demand is expected to recover, the expected increase in global production could lead to a projected surplus of 5.27 million bags at the end of coffee year 2020/21. While current projections would negatively impact prices this year, the covid-19 pandemic remains an unprecedented and swiftly evolving situation.
The monthly average of the ICO composite indicator rose by 0.9% to 115.73 US cents/lb in January 2021. The daily composite indicator fell to a low of 113.01 US cents/lb on 12 January before rebounding to a high of 118.19 US cents/lb on 15 January. The daily price remained at a similar level in the second half of the month, ranging between 114.82 and 117.71 US cents/lb. Prices in January were supported by weather concerns over Brazil’s next off-year Arabica crop in 2021/22 and the impact of the hurricanes in Central America.
Prices for all Arabica group indicators rose in January 2021. The average price for Colombian Milds rose by 1.7% to 173.42 US cents/lb. The average price for Other Milds rose by 1.8% to 160.69 US cents/lb. As a result, the differential between Colombia Milds and Other Milds widened by 0.8% to 12.73 US cents/lb, which is the largest difference since June 2012 when it reached 15.98 US cents/lb. The average price for Brazilian Naturals grew by 1.5% to 116.69 US cents/lb, while Robusta prices averaged 70.71 US cents/lb, 1.8% lower than in December 2020.
The average arbitrage in January, as measured on the New York and London futures markets, rose by 8.1% to 67.05 US cents/lb. Stocks of certified Arabica increased by 15.1% to 1.75 million bags in January 2021, which is the fourth consecutive month of increase. Certified Robusta stocks amounted to 2.4 million bags, 3.9% higher than in December 2020.
The volatility of the ICO composite indicator price decreased by 1.4 percentage points to 7% as the volatility for all Arabica indicators decreased, while the volatility for Robusta prices was 7.7%, 1.6 percentage points higher than in December 2020. The volatility for Colombian Milds fell by 1.9 percentage points to 6.7%, for Other Milds by 2.1 percentage points to 7.1%. and for Brazilian Naturals by 2.9 percentage points to 9.3% in January 2021.
Global exports in December 2020 reached 10.97 million bags, which represents an increase of 1.5% compared to December 2019. Shipments in the first three months of coffee year 2020/21 were 31.59 million bags, 6.1% higher than in October to December 2019. During this period, exports of Arabica rose by 14.1% to 20.95 million bags and Robusta shipments declined by 6.8% to 10.64 million bags.
In 2019/20 global coffee production is estimated at 168.68 million bags, 0.9% lower than the previous year due largely to the decline in Arabica production from Brazil. In 2020/21, world coffee production is projected to rise by 1.9% to 171.9 million bags. Arabica global production in 2020/21 is estimated to grow by 5.2% to 101.88 million bags, reflecting the increase in Brazil’s Arabica production, which is in the on-year of the biennial cycle, as well as expected growth from other major Arabica producers, such as Colombia. However, Robusta production is projected to decline by 2.6% to 70.02 million bags, due largely to a decrease in Viet Nam’s output.
After rising by 0.5% to 18.68 million bags in 2019/20, Africa’s output in 2020/21 is projected to fall by 0.8% to 18.54 million bags. Ethiopia is the world’s fifth largest and Africa’s largest producer of coffee. In coffee year 2020/21, its output is projected to increase by 0.4% to 7.38 million bags due to improved rainfall and newer trees coming into production.
Uganda is the region’s second largest producer, and its harvest is forecast to rise by 2% to 5.62 million bags, which would be the third consecutive year of increase. New trees coming into production continue to boost Uganda’s overall output and the beneficial weather during the growing season is contributing to the larger harvest in 2020/21. Production in Côte d’Ivoire, the region’s third largest producer, is estimated to fall by 8% to 1.78 million bags.
Output from Asia & Oceania is estimated to contract by 0.4% to 49.27 million bags in 2020/21. The harvest in Viet Nam, the world’s second largest and the region’s largest producer, is projected to fall by 4.9% to 29 million bags. Insufficient rainfall and low prices, which discouraged farmers from investing in coffee, are contributing to the lower production. However, output from Indonesia is estimated to increase by 5.1% to 12.27 million bags, and its exports during the first nine months of its 2020/21 crop year increased 11.2% to 5.54 million bags.
After decreasing by 19.4% over the last three years, output from India is expected to grow by 14.7% to 5.7 million bags as a result of sufficient rainfall compared to droughts in previous years, though the impact of heavy rains during the monsoon season may affect the yield or quality of the crop.
After declining in the previous two years, production in Central America & Mexico is projected to remain stable at 19.54 million bags in 2020/21. At the start of the year, parts of the region were severely affected by hurricanes Iota and Eta, which will likely impact production in the region as it recovers. Honduras is the region’s largest producer, and its output is estimated to rise by 2.8% to 6.1 million bags, following a 21.5% decrease in the last two seasons.
To encourage production, the Government of Honduras provided fertilizer to farmers, and beneficial weather during the growing seasons should help yields. While the full impact of the hurricanes is still being assessed, the initial evaluation noted that around 3% of producing areas were totally or partially affected, and that destruction of infrastructure also increased risk of loss. Mexico’s harvest could increase by 0.8% to 4 million bags. Production in Guatemala is estimated to grow by 4% to 3.75 million bags.
Offsetting losses in other regions, production in South America is anticipated to grow by 4.4% to 84.54 million bags in 2020/21, accounting for 49.2% of global production. Brazil’s output is estimated to grow by 12.5% in the current crop year to 69.58 million bags. Its Arabica crop is in an on-year of the biennial cycle and good weather has further boosted yields. Its exports in the first nine months of its crop year reached 34.53 million bags, 13.1% higher than in 2019/20 and 24.6% higher compared to 2018/19.
Colombia’s output is projected to grow by 1.4% to 14.3 million bags. There were concerns that La Niña would negatively impact production, particularly for the mitaca crop, which have not come to fruition. Further, higher domestic prices, particularly as the Colombian peso has depreciated against the US dollar has encouraged farmers to harvest their coffee, and recently renovated plantations coming into production has improved yields.
After rising by 4.4% to 168.49 million bags in 2018/19, global coffee consumption is estimated to have decreased by 2.4% to 164.53 million bags in 2019/20. The decline in global coffee demand stemmed from the downturn in the global economy coupled with losses in out-of-home consumption as social distancing measures and lockdowns were in place throughout much of the coffee year.
In 2020/21, global demand for coffee is expected to stage a limited recovery as social distancing measures remain in place and the global economy slowly picks up. World coffee consumption is projected to increase by 1.3% to 166.63 million bags. Consumption in Africa is estimated to grow by 1.8% to 12.24 million bags, in Asia & Oceania, by 1.4% to 36.5 million bags and in Central America & Mexico, by 0.2% to 5.36 million bags. Coffee demand in Europe is projected to grow by 1.2% to 54.35 million bags. North America’s coffee consumption is estimated to rise by 1.4% to 30.99 million bags, while consumption in South America is projected to increase by 1% to 27.18 million bags.
The larger increase in global production against the limited recovery in consumption leads to a projected surplus of 5.27 million bags at the end of coffee year 2020/21. Tightness in supplies at the start of the year, due in part to delays in harvesting as well as concerns over the impact from hurricanes Eta and Iota have helped to push up prices in the short-term.
However, this is unlikely to last throughout the year as more of the current crop as well as ample supplies from Brazil’s on-year crop in 2020/21 reach the market. This could limit further increases in coffee prices later in the coffee year unless demand recovers more quickly than currently anticipated.
