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Honduras coffee output could be poised for long-term decline


The trend of growing coffee output in Honduras, which has driven the country to third rank among world arabica producers, is poised to go into reverse, unless prices recover sufficient to keep plantations open, Marex Spectron said.


Honduran coffee output has been in on a long-term growth trajectory, which has driven output from less than 3,000 bags at the start of the century to a high of 7.4m bags in 2016-17, and spurred exports which represent a key earner of foreign currency for the South American country.


Even the region’s outbreak of coffee rust early in the decade only represented a temporary setback to growth, with production recovering rapidly from a low of just over 4m bags in 2013-14.


However, the decline in prices over the last three years is now beginning to take their toll, potentially prompting output into a long-term decline.


‘Below cost of production’

Although Honduran coffee production “held up relatively well in 2018-19”, falling by a relatively modest 200,000 bags to 7.1m bags, this was “owing to favourable weather conditions”, which offset some of the pressure prompted by weak prices, Marex Spectron said.


“Prices have fallen below what is widely taken to be cost of production and some marginal producers have abandoned their farms.”


In 2019-20, as started last month, the dent to the industry from weak values would become more apparent, with output seen falling by 600,000 bags to a four-year low of 6.1m bags.


‘Difficult to reverse’

And this trend of decline may become entrenched unless prices recover and provide an incentive for Honduran growers, who have been quitting en masse to join the caravans heading for the US.


“Once farms are abandoned and coffee rust sets in, it will be difficult to reverse” the trend of quitting plantations, Marex said.


“Unless prices recover significantly, a further decrease is to be expected in 2020 and beyond.”


New York stocks

Such an outcome would dent supplies of the high-quality washed arabica beans that Honduras produces, along with other Central American countries, with almost all its crop exported.


It could also have a particular impact on levels of arabica stocks held for delivery against New York Ice futures, with these inventories comprised very largely of Honduran beans.


Honduran origin “is the staple of the Ice certified stock”, said Marex, adding that it represents “currently more than three quarters of the total stock.


“For this reason it is a closely followed origin that has a disproportionately high [influence] on futures prices.”

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