“… market fundamentals continue to be favourable to firm coffee prices, a situation which would seem to be attributable to the growing concerns with short-term supplies while world consumption remains buoyant. With regard to producer stocks, a rebuilding is not expected to be possible in the near future as adverse weather conditions are affecting many producing areas and limiting production prospects.” - the International Coffee Organization (ICO).
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Monthly Coffee Market Report - October, 2010
ICO
October 2010
Coffee prices during the month of October remained firm despite an overall fallback due to a decrease in Arabica prices. The monthly average of the ICO composite indicator price was 161.56 US cents per lb in October, a slight decrease of 1.3% compared to 163.61 US cents per lb in September. However, the ICO daily composite price recorded high levels towards the end of the month, at 172.57 US cents per lb on 29 October, the highest level since 9 June 1997. Market behaviour in October was also characterized by a significant rise in Robusta prices, which recorded their highest levels in two years, resulting in a reduction of the differential with Arabicas. Volatility increased on the futures markets of New York and London by 24.1% and 71.3% respectively.
Supply concerns contributed to the firmness of coffee prices, due to unfavourable weather patterns in a number of countries. In particular, heavy rains in Robusta producing countries including Vietnam, Indonesia and India, also supported the rise in Robusta prices. Unexpected rains have affected production in Central America and also Colombia, which has already experienced low production levels for three consecutive crop years.
Exports by all exporting countries during September totalled 8 million bags, bringing the cumulative total for the coffee year 2009/10 (October 2009 – September 2010) to 93.8 million bags as against 97.4 million bags for the previous coffee year 2008/09, representing a fall of 3.8%. Total exports for the first nine months of calendar year 2010 were 71.5 million bags compared with 73.9 million bags for the same period in 2009.
Price movements
The monthly average of the ICO composite indicator price was down by 1.3%, from 163.61 US cents per lb in September to 161.56 cents in October. The fall in the composite indicator price is attributable to the behaviour of Arabica prices, which as an average lost 3.5% of their value compared to September, while Robusta prices increased by 4.9%. After an initial fall at the beginning of October, both Arabica and Robusta prices grew steadily with the ICO composite indicator price reaching 172.57 cents on 29 October, its highest level since 9 June 1997. High daily prices on the futures markets of New York and London were recorded towards the end on the month, increasing the volatility at 24.1% and 71.3% respectively, compared to September. As a result of an increase in Robusta prices, price differentials between Arabicas and Robustas have reduced. As the price decrease was marked in the case of Colombian Milds, the differentials between prices of that group, Other Milds and Brazilian Naturals narrowed.
Market fundamentals
Total production in crop year 2009/10 was just under 120 million bags compared to 128.4 million bags in 2008/09, representing a fall of 6.7%. This fall is attributable to the decrease in production in Africa and Mexico & Central America as well as in South America. A variety of factors including adverse climatic conditions and high costs of production contributed to this fall.
Crop year 2010/11, which has started in all exporting countries, is also affected by the unexpected weather patterns in key producing areas and causing concerns over short-term supplies. Heavy rains are likely to have a negative impact on current crops in Vietnam and Colombia as well as in Central America. Colombia is moving towards a straight third consecutive year of low level production. Production is also expected to decrease in other exporting countries, in particular Indonesia. This combination of factors is likely to diminish the increase in world production expected during crop year 2010/11 as a result of high production levels in Brazil due to the biennial cycle characterizing its Arabica production.
While waiting for further information from Member countries, the estimate of total production for crop year 2010/11 is unchanged at around 133 million bags.
Exports
Exports in September totalled 8 million bags, bringing the total volume exported during coffee year 2009/10 to 93.8 million bags as against 97.4 million bags for the previous coffee year, a fall of 3.8%. Exports from January to September 2010 totalled 71.5 million bags compared to 73.9 million bags for the same period in 2009, representing a fall of 3.3%.
The value of total exports in calendar year 2009 is estimated at US$13.3 billion for a volume of 96.2 million bags compared to US$15.4 billion in 2008 for a volume of exports totalling 97.6 million bags. As the average ICO composite price during the first ten months of the year 2010 is above 140 US cents per lb compared to 115.67 US cents per lb in 2009 and 124.25 US cents per lb in 2008, it is expected that the total value of exports will increase substantially during calendar year 2010.
World consumption
World consumption totalled 129.1 million bags in calendar year 2009 compared to 130.6 million bags in 2008 (Table 7). Annual average world consumption for the last ten years is around 119 million bags, indicating a positive trend led mainly by coffee exporting countries and some emerging economies.
Limited supply has led to a substantial reduction in the opening stocks of producing countries in crop year 2010/11. Stocks are estimated to have fallen to the historically low level of less than 12 million bags. Low stock levels and delays in harvesting in a number of countries due to extended rains will continue to intensify concerns about short-term market supply. Estimated inventories of green coffee in importing countries were 19.2 million bags at the end of June 2010.
Compared to their levels in June 2009 retail prices in June 2010 were lower in nearly all importing countries. However, the current level of coffee prices is expected to put pressure on roasters to increase retail prices.
In conclusion, it should be noted that market fundamentals continue to be favourable to firm coffee prices, a situation which would seem to be attributable to the growing concerns with short-term supplies while world consumption remains buoyant. With regard to producer stocks, a rebuilding is not expected to be possible in the near future as adverse weather conditions are affecting many producing areas and limiting production prospects.
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