Coffee prices settled higher for the fourth consecutive month in May, but are still below their levels of this time last year, with Robusta prices leading the charge, says the ICO in its monthly report for May 2015.
Exports dipped slightly in April, due to lower shipments from Brazil, but recent estimates suggest a strong recovery in Brazil’s Arabica production this year, with output of Robusta decreasing.
These reduced exports indicate that stock levels in Brazil are likely minimal, so the new crop will need to fulfil both domestic consumption and export requirements over the next year.
The daily price of the ICO composite indicator started the month relatively strongly, increasing from a low of 115.68 US cents/lb to a high of 126.47 cents halfway through the month.
However, most of these initial gains were subsequently lost as the market dropped back down to 118.14 cents by the end of the month.
Nevertheless, the monthly average did settle up by 1.7% to 119.91 cents, representing four consecutive months of higher monthly prices.
This is therefore the highest monthly average so far in 2016, but is still slightly lower than the same time last year.
It is notable that the ICO composite indicator has remained within a relatively narrow band over the last year, with the monthly averages staying between 110 and 125 cents.
In terms of the group indicators, Robustas continued their strong performance, increasing by 4.7% compared to April to reach 83.93 cents, representing a 9-month high.
The three Arabica groups all registered increases of less than 1%. As a result, the arbitrage between Arabica and Robusta narrowed for the second consecutive month.
The differential between the New York and London futures markets was down 5.1%, its lowest level in six months.
Exports of coffee in April 2016 are estimated at 9.3 million bags, down 8.1% compared to the same time last year.
This can be largely attributed to a slowdown in shipments from Brazil, which dropped by 25% to 2.4 million bags.
This suggests that availability from the previous years’ crops has been mostly exhausted, given the recent impressive export performance from Brazil.
This brings total exports for the first seven months of coffee year 2015/16 (October to April) to 65.2 million bags, 0.7% more than last year. Lower shipments of Robustas have been largely offset by higher exports of Arabica.
The Brazilian coffee authorities, Conab, have released their second estimate of production in crop year 2016/17, which started in April.
Output is currently estimated at 49.7 million bags, at the lower end of the range issued back in January, but still an increase of 14.9% compared to 2015/16. Arabica is expected to increase by 25.6% to 40.3 million bags, which would be the largest Arabica crop on record.
This increase is mostly due to higher yields as the area planted is broadly unchanged. Robusta production, on the other hand, is estimated at 9.4 million bags, 16% less than the previous year and below the bounds of the range given in January.
This would be the lowest Robusta crop in over 10 years, as dry weather has had a severe negative effect in several Robusta producing regions.
If realised, this production estimate of 49.7 million bags would be the second highest Brazilian crop on record, and would suggest that Brazil is no longer suffering from the effects of the drought which negatively affected output in 2014/15 and 2015/16.
Indeed, the United States Department of Agriculture (USDA) has also issued a forecast for a strong recovery, of 13% to 56 million bags, just slightly below the levels of 2012/13 and 2013/14.
This new crop will be under pressure to both supply domestic consumption in Brazil and also meet export requirements over the coming year.
The full PDF version of the Coffee Market Report is availbale at this link.
