Rabobank said that it was “friendly” towards arabica coffee prices, once positioning ahead of the Brazilian harvest has worked through, although robusta values may prove more resilient for now.
The bank cautioned that the market was, for now, “likely going to be concentrated on the selling pressure” stemming from the prospect of a large arabica harvest.
“We cannot [rule out] a price drop” in the April-to-June quarter, Rabobank analyst Carlos Mera said.
Indeed, in Brazil – the top arabica-growing country, where the harvest begins in two months or so - the “arabica spot market may weaken towards May and the first half of June”, as first crops in Zona de Mata in Minas Gerais, and in Espirito Santo state, are reaped.
“We expect a bumper crop in these areas,” Mr Mera said, restating findings revealed last week of a Brazilian crop tour.
‘Friendly towards arabica prices’
However, the bank - which last week downgraded to 56.8m bags its Brazilian coffee output forecast for 2018-19, at the lower end of market expectations – cautioned that the “follow-up [harvest] in South of Minas and, to a lesser extent, Cerrado, will be on the disappointing side”.
And this will help support prices in the July-to-September period.
“The higher end of [Brazilian] production estimates may prove to be too optimistic and, therefore, we are friendly towards arabica prices in the third quarter of 2018
Robusta coffee futures, by contrast, will “remain very supported” until about September-October, when hopes for strong Vietnamese harvest ahead can be confirmed.
For now, the robusta market is tackling factors such as disappointing Indonesian 2017-18 harvest, which Rabobank downgraded by 200,000 bags to 11.8m bags.
Ethiopia, Nicaragua upgrades
Nonetheless, the bank overall cut by 1.5m bags to 2.6m bags its forecast for the world production deficit in 2017-18, reflecting enhanced hopes for harvests in Ethiopia and Nicaragua.
“The significant depreciation of the Ethiopian birr in October, of 165, should have resulted in better farmgate prices,” Mr Mera said.
This, combined with improved traceability… makes us confident about the future of Ethiopian coffee.”
However, Rabobank also reduced by 900,000 bags, to 3.2m bags, its forecast for the surplus in 2018-19, reflecting its downgraded expectations for the Brazilian harvest, offset in part by upgrades to some other origins, and a small reduction to the demand estimate.