Nov 24

Coffee Weekly Report - 2023 11 24

This analysis explores EU coffee imports, examining their impact on the NY-LN arbitrage and related factors.
Many destinations have shifted to a higher robusta blend, influencing robusta suppliers. Vietnam, a key supplier, faces export challenges due to crop failures. The 23/24 cycle started with a 25% YoY export decline.
With a potential record 24/25 harvest, Brazilian conilon remains a cost-effective robusta alternative.
23/24 consumption is forecasted to grow, albeit below the trend, and the EU is increasing Arabica imports, with a nearing 60% share.
The relationship between arbitrage and Arabica use suggests a potential recovery in the NY-LN arbitrage. The EU's renewed interest in arabica may contribute to arbitrage upside potential in 2024.

In this report, we will dive into European Union imports and analyze how its recent marks, associated with other factors, can provide insights on the NY-LN arbitrage.

First, it is common knowledge by now that many coffee destinations have switched, if at least partially, to a higher share of robustas in their blend. From the supply side, there are two points to be considered: the main robusta supplier and its alternatives.

In Vietnam, the crop failure is being felt in exports (Chart #2). Despite strengthened differentials in the country, the crop failure in the 22/23 and 23/24 cycles is reflected in the exported volumes.

The first month of the 23/24 cycle already recorded a 25% year-on-year drop in exports, and we expect a further reduction of 2-3% in the country's exported volume during the cycle (on the low-end of estimates, it’s important to note).

Besides this scenario, conilon remains a more affordable alternative in the robusta market. The outlook for a record harvest in 24/25 may prolong this scenario throughout the year 2024 (Chart #1).

On the demand side, consumption is expected to grow in 23/24, but below the trend (Chart #4).

According to historical trends, demand should reach 180 million bags in 23/24. However, with below-average growth in 22/23 and possibly in 23/24, consumption is expected to reach 178 million bags. Nevertheless, it is important to highlight that even with lower rates, demand remains resilient on a positive trajectory for the next cycle.

And when it comes to the blend expected for the next year, the European Union resumes purchasing more arabica (Chart #3), with the percentage of imported arabica approaching 60% in the latest available data for the third quarter.

It is important to highlight the relationship between arbitrage and arabica use. There is a clear yearly seasonality in arabica imports, however, a larger trend also can be seen through the years. More recently, the decrease in arabica demand from the European Union has deteriorated the NY-LN arbitrage. However, with the new recovery in arabica’s share within EU’s imports, it would stand to reason that the arbitrage has some upside potential moving into 2024.

This report delves into European Union coffee imports, assessing their implications for the NY-LN arbitrage and related factors. Many destinations have shifted to a higher robusta blend, impacting robusta suppliers.

Vietnam, a key supplier, faces export challenges due to crop failures. The 23/24 cycle started with a 25% YoY export drop, and a 2-3% reduction is expected. With a potential record 24/25 harvest, conilon remains a cost-effective robusta alternative.

On the demand side, 23/24 consumption is projected to grow, albeit below the trend. The EU is increasing arabica imports, with a near 60% share. The relationship between arbitrage and arabica use suggests potential recovery in the NY-LN arbitrage with the EU's renewed interest in arabica – although that dynamic is expected to play out in the long run.

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Coffee Weekly Report - 2023 11 24

Analyzing destination dynamics and arbitrage trends

Image 1: Robusta/Conilon Differentials (USD/ton)

Image 2: Supply & Demand – Vietnam (‘000 bags)

Image 3: Percentage of Arabica in Total Imports – European Union, NY-LN Arb

Image 4: Global Coffee Demand (M bags)

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Weekly Report — Coffee

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