Sep 29

Coffee Weekly Report - 2023 09 29

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  • Recent rains in Brazil may trigger a second flowering in early October for the 24/25 crop. Also, October marks the start of the 23/24 global cycle and the main harvest for many washed arabica origins.

  • Latin American coffee-producing countries struggle to regain pre-19/20 production levels due to climatic and economic challenges. We anticipate a modest recovery of 700k bags in the 23/24 cycle, with Colombia as main driver.

  • Depletion of initial stocks for 23/24 may lead Colombia to increase imports in the cycle starting in October. Exports may recover in 23/24 but are expected to remain below previous records.

  • Stocks have been depleting over the last four years, reaching the lowest result in recent history. In 23/24, the stock-to-use ratio is expected to fall to 12%, below the historical average of 19%.

Washed arabica coffee challenges

Coffee prices were back on the downtrend this week, with the 145 c/lb support level being an important marker for the first week of October, especially as the recent rains are likely to trigger a second flowering in Brazil, in areas that only registered the first one at the end of August.

Still, besides the 24/25 crop growth in Brazil, October marks the beginning of the 23/24 global cycle, and the main harvest for most washed arabica origins.

Latin American coffee-producing countries posted a record production in 18/19, and after the setback in 19/20, they have struggled to regain previous production levels due to climatic and economic impact. We anticipate a recovery of only 700 thousand bags in the 23/24 cycle, with a larger contribution from Colombia, given the climatic conditions, especially in the southern region of the country.

With the depletion of initial stocks for 23/24 and the expectation of limited production growth, we estimate that Colombia is likely to experience an increase in imports in the cycle starting in October. Consequently, exports may recover in 23/24 but remain below the records set in previous years.

Image 1: Supply & Demand – Colombia (‘000 bags)

Source: hEDGEpoint

Image 2: Exports – Colombia (‘000 bags)

Source: FNCC

It’s also important to highlight the results from farmer selling data in Brazil, indicating that while liquidity has improved when compared to August, this crop’s sold volume is still below the average expected for the period.

This perspective of higher stocks going into the last quarter of the year – when other arabica origins begin their harvest – also weighs down on prices.

Differently from the past week, forecast models are now starting to deviate: the American model suggests near-zero rainfall levels over most coffee areas – except for regions in Sul de Minas and Zona da Mata – whereas the European model already shows a slightly more optimistic view.

Still, rains must follow through to maintain the optimum NDVI levels seen so far, and also to lower the likelihood of pests. For instance, broca: Dry conditions may boost coffee borer beetle activity, with higher temperatures speeding their life cycles, particularly in densely planted lower-altitude areas.

Image 3: Carryover stocks and Stock-to-Use Ratio

Source: hEDGEpoint

Image 4: Country living income – Coffee income (US$/household per year)

Source: Coffee Barometer, Cordes, K. and Sagan, M. (2021)

In Summary

Coffee prices slid this week, aiming for the crucial 145 c/lb support by early October. Recent rains in Brazil may trigger a second flowering, impacting the 24/25 crop.

October also initiates the global 23/24 cycle, fundamental for most washed arabica origins. Latin American producers, after a record 18/19, struggled to recover from 19/20 setbacks.

A modest 700k bag increase is expected in the 23/24 cycle, mainly driven by Colombia. Depleted stocks and global demand could strain the stock-to-use ratio, dropping to 12% (below the 19% historical average). Climate and disinvestment have hampered production in Central America, Colombia, and Mexico.

Weekly Report — Coffee

Written by Natália Gandolphi
Reviewed by Victor Arduin


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