Mar 28 / Natália Gandolphi

Coffee Weekly Report - 2024 03 28

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  • The European Coffee Federation's recent report underscores a notable decline in coffee stocks, plunging to 6.70M bags, down by a substantial 4.65M bags compared to the previous year.

  • This decline, primarily fueled by robusta, presents significant supply challenges within the European Union. While washed arabica stocks remain relatively stable, robusta stocks hit a low of 1.9M bags, comprising only 28% of total stocks, a 10 p. p. decrease from expectations.

  • Arabica imports now constitute 70% of EU imports, indicating a shift in consumer preferences. Economic factors, including interest rate hikes, contribute to this dynamic, supporting prices despite higher stocks in coffee origins.

  • The market is witnessing a transition towards arabica due to arbitrage considerations, hinting at ongoing adjustments in coffee trade dynamics. These developments emphasize the importance of monitoring economic indicators and consumer trends in shaping coffee market dynamics.

ECF Stocks: Market caught off guard

Following up on last week’s report about expectations regarding demand through the European Union lens, this week we will add to the analysis using the latest European Coffee Federation stocks release, with figures from January and February 2024.

Stocks fell to a staggering 6.70M bags low, which represents a decrease of 4.65M bags when compared to the same period last year (even though the monthly decrease was not far from the seasonal pattern, -2% vs. -1.3%).

The results were very bullish – even though the market was already working with lower stock levels for the region, the newly reached levels present a whole different scale of challenges for supply in the European Union.

The decrease was especially driven by robusta; washed arabica stocks remained roughly unchanged (-10K MoM), representing the higher share across coffee types (2.6M bags, or 40% of the total). Natural arabicas had a small increase (+8K bags, to 2.1M bags), and robusta stocks fell by 170K bags, reaching a low of 1.9M bags – now making up only 28% of the total stocks, 10 p.p. less than what would be expected.

Figure 1: European Coffee Federation Stocks (M bags)

Source: European Coffee Federation

Figure 2: European Coffee Federation Stocks, by Type (M bags)

Source: European Coffee Federation

Imports’ figures explain the trend very well: destinations have started the switch between arabica and robusta, but there’s still some way until it is solidified. The share of arabica in European Union imports increased to 70% in the 3-month moving average ending in January.

It’s important to note that destinations have not dealt with the current macroeconomic scenario before, which led to a decrease in stocks (in addition to region-specific characteristics as well). Considering that the weaker side always yields, higher stocks in origins are momentarily overlooked as a bearish factor.

In this sense, destinations are once again importing more arabica, due to considerations regarding the arbitrage, which has been approaching the record low levels (close to ~22 c/lb, reported in 2017). In the meantime, stocks will continue to reflect the aftermath of higher interest rates in those regions, providing support to prices.

Figure 3: Total EU Imports, Share of Arabica in Imports

Source: Eurostat, hEDGEpoint

Figure 4: Ending Stocks – Origins and Destinations (M bags)

Source: hEDGEpoint

In Summary

The European Coffee Federation's latest report reveals a significant decrease in coffee stocks, hitting a low of 6.70M bags, down 4.65M bags from last year. This decline, driven mainly by robusta, poses challenges for supply in the European Union.

Arabica imports are increasing, comprising 70% of imports, while robusta stocks drop to 28% of the total. Economic factors, including interest rate hikes, contribute to this trend, supporting prices despite higher stocks in coffee origins. The market sees a shift towards arabica due to arbitrage considerations, indicating ongoing adjustments in coffee trade dynamics.

Weekly Report — Coffee

Written by Natália Gandolphi
Reviewed by Laleska Moda


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