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Central America's coffee woes tell in price gains - and exchange stocks landmark

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Prices of so-called “other mild” arabica has led the recovery in coffee prices this year, as hurricane damage tells on supplies from the key Central American producing region – a factor reflected in Ice exchange stocks.

 

The International Coffee Organization reported coffee prices as measured by its index rising by 3.1% last month, and achieve their highest level since October 2017.

 

The gains reflected in part broader support for commodity markets which the organisation said “by and large, have been rallying as markets continue to factor in [Covid] vaccine-related optimism and recent container shortages”.

 

However, for coffee itself, prices were supported by “expectations of a deficit in the next season due to high temperatures and low rainfall in Brazil”, the top coffee-producing country, as well as “tightening supplies”.

 

‘Severely affected by hurricanes’

The ICO noted, for instance, the impact on Vietnam’s exports of “delays in the current crop’s harvest”, in part responsible for a decline of 3.9% to 12.19m bags in the country’s coffee shipments in the October-to-January period, the first four months of 2020-21.

 

The impact of “lower prices in the past few years” in discouraging production was blamed for weakened shipments from the likes of Ethiopia, Kenya and Ivory Coast, which led African shipments for the period down by 13% to 3.81m bags.

 

However, it was Central America - the top grower of “other mild” arabica beans - which suffered the biggest drop in shipments by region, down 17.5% to 2.62m bags, after countries such as Honduras were “severely affected by hurricanes Iota and Eta”.

 

“Notably, shipments from Honduras, the region’s largest producer, decreased by 40% to 744,000 bags [in the first four months of 2020-21] while those from Nicaragua fell by 20.2% to 450,000 bags,” the ICO said.

 

Honduras vs Brazil

The tight availability of Central American supplies has been reflected in the make-up of arabica stocks held for delivery against New York futures.

 

While the inventory overall has recovered by 63% from its multi-year low set in October, to hit 1.79m bags as of Tuesday, stocks of Honduran origin beans have fallen by 7.7% to 792,045 bags.

 

Indeed, for the first time, Honduran beans on Tuesday fell behind Brazilian ones in the inventory, at 796,828 bags.

 

While Brazil coffee beans, which typically do not meet Ice requirements, have historically represented only a small proportion of the stocks profile, the country’s record 2020 harvest produced significant quantities of semi-washed arabica which does meet exchange standards.

 

Price rises

The squeeze on Central American supplies also appears reflected in coffee prices as measured by the ICO, which reported prices of other mild beans climbing by 3.6% last month to their second-highest level in more than four years.

 

Other mild price gains this year, at 5.5%, are the largest for any of the five types monitored by the ICO.

 

Brazilian natural arabica coffee, meanwhile, rose by a more modest 2.9% last month and is up 4.4% for 2021, despite the support from worries over drought damage to this year’s harvest.

 

Brazil’s all-coffee exports in the October-to-January period soared by 24% to 16.77m bags, backed by the country’s bumper harvest, and leading South American shipments overall up 15.5% to 23.26m bags.

 

Global coffee exports in the period, at 41.88m bags, were 3.7% higher year on year, the ICO said.

 

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