The International Coffee Organization highlighted the growing discount of robusta prices, even as it raised its forecast for world output of the beans, lifting too its ideas of the world coffee production surplus.
The intergovernmental group highlighted that in July, the discount of London robusta futures to New York futures in arabica beans “increased for the fourth consecutive month”, reaching 44.18 cents a pound.
That represented the largest price gap in 18 months, and took to 46% the widening in the spread since it reached a historic low of 30.23 cents a pound in March.
The widening in the spread has been fuelled by a fall in robusta values since March, on a month-average basis, while arabica prices have risen by more than 10%, helped by 2019 being an “off” year for arabica production in top growth Brazil.
For robusta coffee, the ICO highlighted how Brazilian production “has recovered from the previous drought”, which affected in particular 2016 and 2017 harvests, with the revival evident in the country’s export performance.
Brazilian robusta exports in the first six months of calendar 2019 reached 1.46m bags – up from 505,192 bags for the same period of 2018, and 12 times the 119,146 bags achieved in the first half of 2017.
For the 2018-19 marketing year, as ends next month, the organization raised by 811,000 bags to 168.77m bags its estimate for global production, reflecting in the main an upgraded robusta figure.
Indeed, the ICO ditched expectations of a decline in world robusta output in 2018-19, seeing instead a 439,000-bag increase to a record 64.98m bags.
The organisation raised too its estimates for world coffee consumption this season, although by a more modest 207,000 bags to 164.84m bags.
Raised estimates for demand in Africa and Europe more than offset a downgrade to the North American consumption figure.
However, “despite this growth, world production is expected to exceed consumption by 3.92m bags” in 2018-19, the ICO said.
With an increase too to the surplus figure for 2017-18, this means a “cumulative surplus of 8m bags over the last two seasons”.
However, while the ICO has yet to issue forecasts for next season, many commentators see it showing a global production deficit, in part a reflection of this year’s lower Brazilian harvest (generally counted as 2019-20, rather than 2018-19).
Marex Spectron, for instance, has forecast a 2019-20 world output shortfall of 2.7m bags.
Expectations of a deficit are being underpinned too by expectations of a drop in output in Central America - a key grower of the washed arabica beans that the ICO counts as “other milds” – with recent price weakness particularly painful for farmers in a region with a high cost of production.
Marex this week noted the setback to output prospects from “poor husbandry in the region owing to low prices”, adding too that “drier-than-average conditions have been observed” over the past month in Honduras, Mexico and Nicaragua.
The weakened Central American prospects appear to be manifesting themselves in values, with the ICO price data showing a widening in their premium to Brazilian natural beans above 30.00 cents a pound last month.
That premium, up 50% year on year, is the highest since July 2015.