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Rabobank 'no more bearish' on coffee prices, despite raising supply hopes

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Rabobank stood by expectations of a revival in arabica coffee prices, despite raising supply estimates made only two weeks ago – terming “likely inescapable” the prospect of a return to a world output deficit in 2019-20.


The bank cut by some 500,000 bags to 4.1m bags its forecast for the world coffee production output deficit this season, citing apparently “disappointing” levels of use in the European Union and Japan.


“Given disappointing disappearance figures in the July-to-September quarter, we had to lower” the estimate for global coffee demand in 2017-18 top 159.7m bags, 400,000 bags below a forecast released in late November.


For 2018-19, the bank raised by 1.1m bags to 4.1m bags its forecast for the global production surplus, flagging the potential for a “very large”, 59.0m-bag harvest in Brazil, the top growing country, and a 29.4m-bag crop in Vietnam, the biggest robusta bean producer.


‘Not any more bearish’


However, the bank added that it had “not become any more bearish on prices”, and was still expecting arabica values to end next year at about 134 cents a pound.


That is ahead of the 130.95 cents a pound that December 2018 futures were trading at on Wednesday, up 1.6% for the session, boosted by firmness in the real, and a round of profit-taking by investors with short positions, which have indeed proved lucrative bets as futures have tumbled to contract low.


The bank termed even a world coffee production surplus of 4.1m bags, as expected for 2018-19, as “relatively small”.


It would see leave world coffee output 4.4m bags behind consumption over the five seasons to 2018-19, on Rabobank estimates.


Deficit likely


And the world appears set for a return to a production deficit in 2019-20, which would be an “off” year in Brazil’s cycle of alternate higher and lower harvests.


“The expectations for a deficit [in 2019-20] are likely inescapable in light of increasing demand and prices too low to incentivise a further expansion of production,” Rabobank senior commodity analyst Carlos Mera said.


The bank is particularly upbeat over prospects for coffee consumption in producing countries, which it sees rising by 2.7% this season, compared with 2.0% growth in drinking in importing nations.


‘Further drops in stocks’


Shorter tem, the bank also flagged the downturn in world exports in the August-to-October period, reflecting this year’s relatively weak Brazilian arabica crop, it being an “off” year for output, and last year’s “slightly disappointing” Vietnamese crop.


“This deceleration should be reflected in further drops in importing country stocks, especially in the current and coming quarter,” Mr Mera said.


Brazilian coffee exporters’ association Cecafe on Tuesday revealed the downturn in the country’s shipments extending into November too, when exports came in at 2.57m bags, a drop of 13.0% year on year.


Cecafe said that export levels were likely to remain “quiet” early in 2018, before resuming gaining in the middle of teh year, as supplies from the next harvest come onstream.

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