ICO predicts coffee demand to continue to outstrip supply in 2010

Letter From the International Coffee Organization (ICO) Executive Director

ICO Coffee Market Report
March 2010

Market movements and coffee prices continue to be dominated by reduced production in a number of exporting countries and the steady erosion of stocks in both exporting and importing countries. In March the monthly average of the ICO composite indicator price rose by 1.6% from 123.37 US cents per lb in February to 125.30 US cents per lb. Robusta prices fell, however, widening the differential with prices of Other Milds, which rose from 89.98 US cents per lb in February to 97.25 US cents per lb in March.

As a result of information received, the estimate of world production for crop year 2009/10 has been revised downward to between 120 to 122 million bags. Colombian production in the first five months of crop year 2009/10 was well below the level recorded for the same period in crop year 2008/09, indicating the likelihood of a second consecutive year of reduced production. This is attributable mainly to renewed outbreaks of coffee berry borer following heavy rainfall in the previous crop year, as well as the implementation of the coffee regeneration programme.

Exports by all exporting countries during February 2010 totalled 7.1 million bags compared to 8.7 million bags in February 2009. The cumulative total for the first five months of coffee year 2009/10 (October 2009 – February 2010) was 35.6 million bags compared to 40 million bags for the same period in 2008/09, a fall of almost 11%. Declining production in many countries has led to a drawing down of remaining stocks to very low levels, especially in exporting countries, while certified stocks of the New York and London futures markets have been falling continuously since September 2009.

Price movements

The monthly average of the ICO composite indicator price increased by 1.6% from 123.37 US cents per lb in February to 125.30 US cents per lb in March. Arabica prices rose while those of Robustas fell once more. As a consequence, the differential between each of the three Arabica groups and Robustas widened further. It should be noted that the increase in prices of Other Milds was steeper (4.2%) than in the case of the other two groups, narrowing the differential with Colombian Milds by 12% to 41.21 US cents per lb in March from 46.85 US cents per lb in February. The differential between Colombian Milds and Brazilian Naturals decreased slightly.

Market fundamentals

My estimate of total production in crop year 2009/10 is revised to between 120 and 122 million bags, representing a fall of 4.8% compared to crop year 2008/09. Recently revised production data in Central American countries, especially Costa Rica, Guatemala and Nicaragua, accounts for this substantial revision. Vietnam has also been experiencing climatic difficulties as a result of the drought caused by the El Niño phenomenon. The large number of aging coffee trees has added to these difficulties. The country’s authorities have informed me that Vietnamese production may be reduced to about 17 million bags during the current crop year. In the case of Colombia, despite the positive results expected from the tree regeneration programme, the size of the crop harvested during the first five months of the crop year makes it difficult to envisage a substantial recovery in total production. On the other hand, Indonesia, with an estimated production level of around 10.7 million bags, has become the world’s third largest producer after Brazil and Vietnam.

In the case of crop year 2010/11, which begins in in April 2010, the Brazilian authorities envisage an increase in Arabica production in accordance with the biennial production cycle. According to the latest estimates provided by the Brazilian coffee authorities in January 2010, production will be between 45.9 and 48.7 million bags. The most recent estimates from private sources indicate a substantially higher production figure. I await the next official estimates before reassessing the situation.

Exports during February totalled 7.1 million bags, bringing the total volume exported during the first five months of coffee year 2009/10 to 35.6 million bags compared to 40 million bags for the same period in 2008/09, a fall of nearly 11%.

Exports of all four coffee groups fell during the first five months of coffee year 2009/10 compared to the same period in 2008/09. More specifically, exports of Colombian Milds fell by 30% and those of Other Milds by 2.5%. Brazilian Naturals and Robustas fell by 9.7% and 9.8% respectively.

Stocks in importing countries were estimated at 22.6 million bags at the end of December 2009, compared to 25.6 million at the end of September 2009. Based on information available, certified stocks of the London and New York futures markets are continuing to fall.

World consumption in calendar year 2009 is estimated at 132 million bags compared to 130 million bags in 2008. On this basis, the world’s biggest consuming countries are the United States of America (16.2% of total world consumption), Brazil (13.9%), Germany (6.7%) and Japan (5.6%).

In conclusion, I would like to indicate that the dynamic performance of world consumption and lower production in some important producing countries have helped to support a firm market, particularly in the case of Arabicas. Stocks are at low levels both in exporting and importing countries since they are being drawn down to offset the reduction in supply. Bearing in mind the outlook for production, it is likely that demand will continue to outstrip supply in coming months.

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