Jul 19 / Laleska Moda

Indonesia may have larger crop, but 24/25 still points to global deficit

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  • The 24/25 harvest in Indonesia has picked up pace in recent weeks. Production is expected to recover this season as the weather has been more favorable for development.

  • The higher production should also reflect a recovery in 24/25 exports after the decline in 23/24, even with weaker shipments in the first two months of the season.

  • On the other hand, the increase in supply is already reflected in lower differentials in Indonesia. Other origins also saw adjustments this week.

  • However, the overall picture still points to a coffee deficit in 24/25, which could support prices in the medium term.

  • In Vietnam, even with the return of rains in May, the 24/25 season is expected to be lower due to drought through April. The country's carryover stocks also remain low due to the 23/24 shortfall, which could ease pressure on local prices in the coming months, at least until the 24/25 harvest begins.

  • In Brazil, the reported problems of low screen and processing yields have also led us to revise our figures.

Indonesia may have larger crop, but 24/25 still points to global deficit

The 24/25 crop in Indonesia, the world's third largest Robusta producer, has picked up pace in recent weeks. After the 23/24 shortfall due to adverse weather conditions, the country is expected to recover slightly, reflecting better rainfall during the development of this season. Thus, our current expectations are for a production of 11.2 million bags in 24/25, up 1.2 million bags on 23/24. Activity should peak this month and in August.

On the export side, the country’s shipments fell sharply in 23/24, reflecting the lower supply. The 24/25 season also began with low shipments, with only 464.4 thousand bags accumulated in the first two months, down 35.4% from the same period in 23/24. However, exports are expected to recover in the coming months as the harvest intensifies and our initial expectations are for a 13% recovery in total shipments for 24/25 compared to last season, ending at 7.8 million bags. It will therefore be important to monitor the development of Indonesian exports in the coming months to confirm the recovery in production and exports in this cycle.

It's worth noting that despite the lower shipments so far, the prospect of greater supply in Indonesia has changed market sentiment, with the country's differentials narrowing this week as the harvest progresses. There are reports of premiums being offered as high as US$600 for the September LN contract, down from last week's levels.

 Total Supply and Demand – Indonesia (M bags)

Source: Hedgepoint

Exports - Indonesia ('000 bags)

Source: Bank Indonesia

The fall in prices was also seen in other origins of robusta, such as Vietnam. In this country, it was also reported that buyers remained more withdrawn due to the high prices being asked by producers. However, negotiations are expected to remain subdued in the coming weeks as Vietnamese stocks remain low and the 24/25 crop is only expected to start in a few months, with new beans coming into the market at the end of 2024. It's worth remembering that despite the improvement in the weather in Vietnam from May onwards, the drought at the start of 2024 could still have an impact on 24/25 production and our current estimates point to a slightly smaller crop than last season, around 27 million bags in this new cycle.

In this scenario, while we expect some correction to current levels for robusta as the Indonesian harvest progresses, the overall picture remains supportive of prices in the medium term. Despite the expected recovery in the latter country, lower robusta production in other origins is likely to limit supply in 24/25. In addition to the smaller crop in Vietnam, lower screen and processing yields in Brazil are also likely to result in a smaller 24/25 crop than originally forecast. Our forecast is for a total crop of 66 million bags compared with the 67.4 million we initially forecasted. The reduction should come from both robusta and arabica, although the latter's supply should still be higher than 23/24.

Our models therefore suggest that the increase in arabica production will not be sufficient to offset the expected reduction in robusta, which could lead to a fourth consecutive year of a global coffee deficit, supporting prices in the medium term

Differentials – Robusta (USD/mt)

Source: Refinitiv

Global Coffee Balance (M bags)

Source: Hedgepoint

In Summary

Harvesting of the 24/25 crop in Indonesia is beginning to gather pace, with peak activity expected this month and in August. As the harvest gains momentum, more robusta coffee is entering the market, putting pressure on differentials in the country and other origins. Although Indonesia's export performance has been poor to date, shipments are expected to increase this season as the country's supply is expected to recover this year.

Despite the more optimistic scenario in this origin, the overall picture still points to a coffee deficit in the 24/25 season due to the reduction in robusta production. In Vietnam, drought conditions until April are still expected to result in lower production in 24/25. In addition, stocks in the Asian country remain very low due to the 23/24 shortfall and are expected to limit trading as 24/25 beans will not reach the market until the end of the year. In Brazil, bad weather in 2023 and 2024 has also led us to revise our numbers downward. As a result, the higher arabica production this season may not be enough to cover the gap left by robusta.

Weekly Report — Coffee

Written by Laleska Moda

laleska.moda@hedgepointglobal.com

Reviewed by Victor Arduin
victor.arduin@hedgepointglobal.com
www.hedgepointglobal.com

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