Apr 19 / Natália Gandolphi

Coffee Weekly Report - 2024 04 19

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  • The European Union's February import data shows some recovery, with 3.84 million bags of green coffee imported, down 5% from January but within historical seasonal patterns.

  • The import profile has rebalanced to 60% arabica, reflecting concerns about robusta stock volumes and further tightening in the robusta market.

  • Supply challenges in Vietnam and Indonesia may strain robusta availability in the 24/25 cycle. In Vietnam, low soil moisture levels raise concerns, despite the expectation of higher volumes in the next two weeks.

  • The EU increased imports from alternative origins, including Brazil, reaching a record high in March. With Brazil's 24/25 harvest approaching, the market anticipates relief from the deficit tightness from July onward.

  • However, the current scenario in Vietnam remains uncertain, with accumulated rainfall still below average, but with prospects for recovery.

Adjustment in European Union imports

The European Union has released imports data for February – showing a recovery, albeit limited. The bloc imported 3.84M bags of green coffee, down 5% when compared to January. Still, the move is well within average (-9% between the two months, considering the historical series since 2010), which shows that while the decrease respected seasonality, it was a lot smoother than expected for the period.

It’s also important to note that the profile of imports is balancing itself out after swinging heavily towards arabica in the end of 2023. 60% of the imported volume was arabica, in line with the historical average (61%). The decrease happened after the bloc reported the highest share of arabica imports since 2010 in December (72%).

The change reflects both an equilibrium after the pendulum swung so heavily into the arabica range, but also a clear concern regarding the volume of robusta stocks in the bloc, with buyers getting ready for a more intensive tightening in the robusta market.
This could happen due to two main reasons: first, Vietnam will enter its exports’ offseason in Q2, and while the market would rely more on other origins in Southeast Asia, Indonesia may see another cycle of limited supply, due to adverse weather during development, and possible delays due to the forecast of heavier rainfall levels over the next weeks.

Figure 1: European Union Green Coffee Imports (M bags)

Source: Eurostat

Figure 2: Share of Arabica in European Union Imports

Source: Eurostat, Hedgepoint

In this scenario, it’s already known that the bloc has been importing more coffee from alternative origins, Brazil included. In March, that volume spiked to a record high: 2.18M bags (the previous high in the short-term series was reported in November 2020).

Now, with the upcoming harvest of the 24/25 cycle in Brazil, the market expects volumes to relieve some of the deficit tightness, especially from July onwards. Farmer selling for the 23/24 cycle was stretched thin over the past quarter, with 96% of the conilon crop already sold by April. At 22.54M bags of production, this would represent less than 1M bags in net stocks (stocks that have only been sold, and not necessarily exported or consumed internally; as a rule of thumb, gross stocks are generally 3 to 4 times higher than net stocks, but it’s been known to vary a lot between crops).

In this scenario, the 24/25 harvest already consolidates its leading role, and sellers are likely to act in accordance with the daily changes in climate forecasts observed for the main robusta producer, Vietnam. Soil moisture levels are considerably low, but the forecast has recently changed to suggest that the dry spell may be coming to an end. By watching the situation in Vietnam unfold, the market may observe selling pressure points.

Figure 3: Total Brazilian Exports – European Union (M bags)

Source: Cecafé

Figure 4: Soil Moisture – Vietnam and Indonesia (0-0.1m below ground content)

Source: NOAA, Hedgepoint

In Summary

The European Union's February imports data shows some recovery, with 3.84 million bags of green coffee imported, down 5% from January but within historical seasonal patterns. The import profile has rebalanced to 60% arabica, reflecting concerns about robusta stock volumes and further tightening in the robusta market.

Supply challenges in Vietnam and Indonesia may also strain robusta availability further in the 24/25 cycle. The EU increased imports from alternative origins, including Brazil, reaching a record high in March. With Brazil's 24/25 harvest approaching, the market anticipates relief from the deficit tightness from July onward, but in the meantime, the market will watch closely how the weather pattern develops in Vietnam.

Weekly Report — Coffee

Written by Natália Gandolphi
natalia.gandolphi@hedgepointglobal.com
Reviewed by Laleska Moda
laleska.moda@hedgepointglobal.com
www.hedgepointglobal.com

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