Stocks of arabica coffee held for delivery against New York traded futures are poised to fall to a multi-year lows, as they are plundered by roasters seeking supplies amid a world production deficit.
The level of inventories certified for delivery against New York arabica futures, having set a low of 1.245m bags in December 2016, doubled to 2.49m bags in March, thanks to strong 2018-19 world production.
However, the flow of coffee for certification “has slowed sharply” since, allowing an erosion to 2.32m bags in inventories as of Monday, Marex Spectron said.
And this trend looks set to continue as users seek supply in a 2019-20 season which the trading house estimated would produce a global arabica production deficit of 5m tonnes, in what is an “off” year in the cycle of alternate higher and lower crops in top grower Brazil.
The certified stocks will be particularly attractive thanks to their increasing age, which under exchange rules means they attract a price discount.
With “only” 285,000 bags of beans certified over the past year, “the average age of stock has been gradually increasing,” Marex said, estimating the average discount at 9.67 cents per pound at both European and US stores.
This makes it “much cheaper than origin offers of Brazil good cup,” at a discount of 11 cents per pound to futures on an FOB basis, besides new crop Honduran beans, at a premium of 8 cent per pound.
“As the crop year progresses, the discounts applied to the certified stocks will increase, making it ever more competitive,” the trading house said.
“We expect the total stock to drop to between 0.5m-1.0m bags by next summer.”
Inventories have not been that low for years, with the dynamic suggested higher futures prices, as the exchange bids for supplies to meet the raised demand.
The shift too could see a change in the make-up of the stocks, of which two-thirds currently hail from Honduras – which is expecting a 5% drop to 6.6m bags in output in 2019-20, according to the Honduran Coffee Institute.
Other origins well represented including Mexico and Peru, at about 10% of the stocks apiece, and Nicaragua at 4.5%, with Colombia, once a popular source of certified beans, accounting for just 0.2% of the current inventory.