Marex Spectron forecast global coffee production to
undershoot demand by 3.0m 60-kg bags next season, thanks to lower production in
top-grower Brazil, the fourth such deficit in a row.
"Already at this very early stage, it is probable that
there will be a fourth deficit and possibly a large fourth deficit," Marex
said, forecast a 5m bag fall-off in Brazilian production.
The broker forecast global coffee production to fall to
152.6m bags in 2017-17, down 900,000 bags from a year earlier.
Demand, meanwhile was seen rising by 1.9m bags, to 153.7m
And Marex noted that unlike in previous years, "in 2017-18
there will be no government or private producer stocks to fill the gap".
Falling Brazilian production
Brazilian coffee production was forecast to fall by 5.0m
bags, to 50.5m bags, thanks to lower arabica areas, and continued bad weather
for the robusta crop in Espirito Santo.
And most of the Brazilian crop will be in an off-year next
Coffee has a biennial cycle, meaning that years alternate
between heavy and light crops.
"All arabica regions except Zona da Mata will be in an
off-cycle," Marex said.
"For arabica, we see little downside in New York from current
prices" Marex said.
Heavier Vietnam crop
But a larger crop was anticipated in Vietnam, the world's
second largest coffee producer, and the number-one ranked robusta producer.
The crop was seen rising by 3.5m bags, to 28.0m bags.
"2017-18 will be an on-cycle and high prices will provide
a huge husbandry incentive," Marex said.
"In addition, soil moisture is excellent and reservoir
levels have been restored by the unseasonal rains in Novever, December, and January."
Marex said that due to the prospect of heavy robusta stocks
from Vietnam "the market has just swallowed a huge pill, and this needs to be
"In the short term we cannot rule out a dip, but would look
to buy any meaningful dip."
Brazil already has a shortage of robusta, after prolonged
Markets are waiting to see if Brazil will allow the import
of robusta to ease the tightness in the domestic market, particularly for
instant coffee production.
This move is being strongly opposed by Brazilian robusta
growers, who area benefiting from the high domestic prices.
Brazilian producers have committed to present a report to
the country's agriculture ministry by Friday, to prove that there are
sufficient robusta stocks to meet demand from roasters.
Waiting for news
"These discussions have developed as a result of the smaller
drought affected robusta crop of last year and ahead of the new and forecast to
be another smaller dry weather robusta crop that is due to begin harvest around
three months' time," said coffee trader I&M Smith.
"Our understanding at the moment is that there will be no
robusta imports to Brazil in the 2016-17 crop year," Marex said.
"Were this understanding to prove wrong however, and were
Brazil to import robusta, there would be clear imprecations for the arbitrage."