Oct 20

Coffee Weekly Report - 2023 10 20

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  • A surprising drawdown in EU stocks occurred in August, marking a 12.8% decrease to 10.23M bags, contrary to seasonal trends.

  • Import volumes for June and July were below average, notably 7% lower in July, yet cumulative imports are at 38.6M bags, reflecting a 4.6% decrease from the previous year.

  • The decline in stocks is not solely a result of reduced imports; in the first month of the 22/23 cycle (October 2022), stocks fell by 26%, surpassing replenishment rates. This deviation is linked to higher stocking costs.

  • Apparent consumption, currently at 38.6M bags, exceeds expectations. This could impact the 22/23 and 23/24 cycles, with reported balances of -4.8M bags and -1.5M bags, respectively, providing some support amid economic challenges across the supply chain. Despite potential trade flow disruptions, yearly balances remain resilient, indicating a nuanced picture in the EU coffee market.

Coffee Market Shifts in EU

In our previous report regarding European Union apparent consumption, considering the data released up to June, indicators were already bullish – signaling that the bloc was rebuilding stocks at a lower rate than expected, when accounting for imported volumes.
In this update, we will look at the consolidated data up until July, and markers remain supportive of prices, although the dynamic between imports and stocks has changed.

First, stocks started to drawdown in July, according to ECF data. The movement was against seasonality, with stocks reaching 10.23M bags in August (-12.8% compared to the beginning of the year, when stocks are usually 10% higher in August vs. January, Chart #1).
As for imports, volumes have indeed been lower than average in June and July (in the last one, specifically, 7% below average, Chart #2). Nonetheless, the drop in imports has been tamer than the subsequent decrease in stocks.

Image 1: Coffee Stocks – European Union (M bags)

Source: European Coffee Federation, hEDGEpoint

Image 2: Coffee Imports – European Union (M bags)

Source: Eurostat, hEDGEpoint

In the cumulative figure, imports are at 38.6M bags, which is 4.6% below last year’s levels during the same period, and 5% below the expected metric between October and July, considering an estimate of 48.3M bags imported throughout the entire cycle.

Now, the decrease in imports only accounts for 5 percentage points of the stock drawdown. Considering the first month of the 22/23 cycle, October 2022, stocks fell by 26%. This means that, even though the EU has been importing less coffee over the recent months, stocks fell by more than the replenishment rate – a fact that is inherently linked to higher stocking costs in destinations.

Consequently, the apparent consumption metric is slightly above what would be expected for the same October 2022 – July 2023 window: 38.6M bags vs. 37.3M bags. Accounting for the -3.5% deviation seen up until now, apparent consumption in the EU will likely be readjusted up in our supply & demand balance, staying in the range between 44.3M and 45.8M bags (+1.5M), which affects the consolidated 22/23 S&D and estimates for 23/24 as well.

Currently, we are working with a -4.8M bags balance for the 22/23 cycle, that ended in September 2023, and a -1.5M bags balance for the current 23/24 cycle. Therefore, even though trade flows might suffer from the economic challenges presented by higher costs across the chain, in terms of yearly balances, some support is still being reported.

Image 3: Coffee Imports – European Union (M bags)

Source: Eurostat, hEDGEpoint

Image 4: Apparent Consumption – European Union (M bags)

Source: European Coffee Federation, Eurostat, hEDGEpoint

In Summary

The European Union's coffee market shows a decline in stocks amid lower-than-average imports, resulting in a 12.8% decrease in August. While imports are 4.6% below last year's levels, the stock drawdown is attributed to higher stocking costs. Apparent consumption exceeds expectations at 38.6M bags, prompting a potential adjustment in the supply-demand balance for 22/23 and 23/24 cycles.

Despite economic challenges, yearly balances remain supportive, with a -4.8M bags balance for the 22/23 cycle and -1.5M bags for the current 23/24 cycle. On the other side, other fundamentals may still exert pressure on prices, namely Brazil’s 24/25 crop potential.

Weekly Report — Coffee

Written by Natália Gandolphi
natalia.gandolphi@hedgepointglobal.com
Reviewed by Lívea Coda
livea.coda@hedgepointglobal.com
www.hedgepointglobal.com

Disclaimer

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