Robusta coffee stocks held for delivery against London futures are to soar to their highest in four years, lifted by Brazilian supplies - and signalling further, relative, strength in values of beans from other origins.
Certified robusta coffee stocks have already doubled from a four-year low set in May last year to stand at 143,930 tonnes (2.40m bags) as of Tuesday, data from the ICE exchange show.
That represents a gain of some 180,000 bags over the previous week.
And, according to Marex Spectron, the inventory swell is poised to continue, boosted by deliveries from Brazil, where producers are seeking markets for a newly-harvested crop seen by many observers as setting a record.
Marex is particularly upbeat on Brazil’s 2019 production, pegging it at 19.75m bags, while the US Department of Agriculture sees it at 18.30m bags, and Rabobank at 18.85m bags.
The extent of output of Brazil’s “conilon” robusta beans “would imply that Brazil could export as much as 5m bags of conilon between July 2019 and June 2020”, growth of 1.5m bags year on year, Marex said.
And delivery against futures looks particularly attractive as conilons, while selling “at a lower price to roasters outside of Brazil… can be delivered to the board as the same price as other robustas.
“The likely destination for a large part of these exports is the futures market,” the trading house said, estimating already that the proportion of conilons in the certified inventories had soared above 70%, from 15% a year ago.
Marex forecast that overall robusta certified stocks will by the end of 2019 “surpass 3m bags” for what would be the first time in four years, with Brazilian origin accounting for 90% of this total.
Such a stockbuild would represent a reversal of the drawdown seen over 2016 and 2017, which was encouraged by a dip in world robusta output, as dryness hurt Brazil’s plantations, while top grower Vietnam saw a production downturn too.
ICE stocks also proved attractive at the time given the proportion of beans which had been stored for longer than a year, meaning they attract an age discount of $5 per tonne per month up to 48 months from the date of grading, and $10 per tonne thereafter.
Certified stocks of conilons from 2014-15 were reported a year ago as selling at discounts as deep as $130 a tonne.
However, given the extent of newly-delivered beans currently in store, currently “the average age discount is very low”, at about $7 per tonne, Marex said.
Brazil vs Vietnam
The ideas of significant conilon deliveries to ICE also tally with Brazilian export data.
Shipments to Belgium and the UK, countries where the majority of certified stocks are located, rose by 32% in the first half of 2019, according to industry group Cecafe.
However, while large inventories could put prove a weight on futures prices, in indicating ample supplies, coffee from origins such as Indonesia, Uganda and Vietnam preferred by many roasters to Brazil could at least prove relatively strong.
The shift in the certified stocks make-up “will mean that the differentials of other robustas will remain firm”, said Marex, noting that this price gap had already reached levels “rarely seen before”.