The long-awaited switch by coffee buyers back to arabica, from less expensive robusta supplies, will happen next season - but will not prove strong enough to turn fundamentals bullish, Marex Spectron said.
The much-anticipated return to arabicas, whose high prices two seasons ago prompted many roasters to switch to robusta beans, failed to materialise in 2012-13 because the price signals were not quite strong enough.
"The arbitrage never got low enough, soon enough or for long enough to materially affect the balance sheet," the London-based merchant said.
However, changes in market dynamics have set the scene for a "material" shift from robusta beans to arabicas in 2013-14, which starts next month, of potentially some 2m bags.
'Discount to robusta'
One change is a move by Rio Minas beans - inexpensive arabicas which form the basis of strong coffee drunk in the eastern Mediterranean – to a discount to robusta in Brazil's domestic market.
Brazil is the top coffee growing country - mainly of arabica beans, but also of some so-called "conilon" robusta variety – and ranks second in the consumption league.
Low grade arabica beans have also "been trading broadly flat, or even at discounts, to conilons" - pricing which "should alter the demand picture as roasters adjust their forward purchases", Marex said, in comments which follow research by Cepea highlighting resilient Brazilian robusta prices.
This should see a switch of some 1.25m bags in Brazil - where roasters have already begun to switch back to arabicas for the first time in 10 years, according to the International Coffee Organization - with other emerging markets chipping in with some 750,000 bags.
The switch will be less evident in Western markets, given that the larger multinational groups, with "hard won consumer loyalty… will swap nothing".
"They rarely tinker with their blends but prefer instead to ensure that they compete at each price point," the broker said.
However, this will do little to instil tightness in world supplies, after an arabica surplus Marex estimated at 7.25m bags in 2012-13.
While next season will see a small deficit, of 250,000 bags, and Brazil's government should remove about 3m bags from the balance sheet through its industry support programme, "the total surplus over the two years is still 4m bags".
And 2014-15 could well be another surplus season, being an "on" year in Brazil's cycle of alternate higher and lower producing years.
"Given normal weather, which is by no means certain as every year seems to be in some way sub-optimal, the potential is there for a record crop."
'Rallies need to be sold'
There was some potential for prices to move higher short term, given that "much bad news is priced into the market, and the balance sheet appears to be moving the other way".
However, the "longer term trend is still down", Marex said, adding that "any meaningful rally needs to be sold".
Nor was the broker positive on robusta beans, given the prospect of some demand switch and a record Vietnamese crop, of potentially 30m bags, ahead.
While short-term there "is a window in which the market can rally", in what is a seasonally strong period for robusta, "longer term we are negative".