Coffee prices plunge amid surplus of beans
World coffee prices plunge amid huge surplus of beans, IHS Markit’s Agribusiness Intelligence reveals.
World coffee production rose to a record 174.6 million 60kg bags in the current season, according to IHS Markit’s Agribusiness Intelligence. This is an increase from 161.2 million bags last year, which has led to a huge surplus and plunging prices.
Brazil – the world’s top producer of coffee – is experiencing a surge in production in recent years as more trees planted during a renovation and expansion programme have entered their productive cycle. Consequently, the global coffee market is currently facing the dual predicament of abundant production and a very weak Brazilian currency. This is incentivising exports onto an already oversupplied world market.
While global coffee consumption is still forecast to rise by 1.8% this year, consumption in many industrialised countries has reached a degree of market saturation – such that only modest growth is still possible. Despite more dynamic growth in Asian countries such as Japan and South Korea – where the proliferation of popular coffee chains has boosted the sector’s growth – global consumption is not rising in line with excessive global production. Global offtake is a function of several variables including population growth, income, availability of coffee and substitute drinks and prices both for coffee and its alternatives.
Abundant Brazilian arabica and robusta production as well as a seemingly unstoppable weakening of the Brazilian currency, are key factors for the current pressures on prices.
Only a weather-related crop disaster in Brazil would be capable of putting the market on a better footing.
Stefan Uhlenbrock, Senior Commodity Analyst, IHS Markit’s Agribusiness Intelligence, said: “The weakening of the real makes life easier for Brazilian producers as it increases returns in local currency from dollar-denominated coffee sales, but at the same time it has contributed to the drop of “C” arabica futures to a 13-1/2-year low in April and robusta futures to a 9-year low.
“This means that prices are now below the cost of production for almost all the world’s producers, which is likely to have an impact on farmers’ ability to buy crop inputs and apply good crop care for the year ahead. Poor global coffee prices may take their toll on production next season as they may entice farmers to cut costs and save on crop inputs.
“Although global consumption is continuing to rise, it’s difficult to construe a bullish picture at this point. The rise is still only small and the ample availability of coffee in the coming months is likely to keep bearish sentiment alive for the time being.
“It seems that only a weather-related crop disaster in Brazil would be capable of putting the market on a better footing and this is not something you would wish on your worst enemy – nor does this scenario look likely or seem imminent.”