For a look at just how short the world has become on coffee supplies, consider this: Stockpiles in Brazil, the biggest producer globally, are headed for a record low.
Inventories in the South American nation may dip to just 7 million bags by March, according to Silas Brasileiro, president of the National Coffee Council. A more comfortable level is between 9 million and 12 million bags weighing 60 kilograms, analysts say.
Brazil’s supply woes echo global scarcity, threatening to push prices higher amid a backdrop of persistent food inflation. Arabica stockpiles held at port warehouses monitored by the ICE Futures US exchange are at the lowest level in 23 years.
Meanwhile global demand keeps increasing, with consumption this season growing 1.5% after a 2% increase last year, according to research firm hEDGEpoint Global Markets.
Stockpiles “are so low that even if we have a good crop next year, Brazil may just barely have enough to serve demand,” said Nelson Carvalhaes, a board member of exporters group Cecafe. “We just need to have the rain.”
Tight global supplies led arabica coffee futures in New York to rise 11% year on year, and analysts expect prices to continue climbing. Even in Brazil’s domestic market, the cost of a bag delivered to the main consumer area of Sao Paulo increased by 19% from a year ago, according to data from University of Sao Paulo.
“Global prices will continue to go up, and the uncertainty on Brazilian supply is one of the main reasons,” said Guilherme Morya, senior economic analyst for Rabobank.
Companies from Starbucks Corp. to JDE Peet’s NV, one of Europe’s biggest roasters, have been increasing prices to keep up with inflationary pressures.
Given Brazil’s situation, there’s little in the way of relief from tight global supplies. Weather conditions caused by La Nina are expected to extend into the next few months, bringing more dryness to Brazil and too much rain to Colombia, the world’s second-ranked coffee supplier. Adverse weather may also hurt yields in Guatemala, Honduras and Nicaragua, while Vietnam, the largest robusta supplier, has seen its stockpiles shrinking amid a poor harvest outlook.
It all points to the coffee market heading for a second consecutive year of higher demand than supply, a rare occurrence, said analyst Natalia Gandolphi from hEDGEpoint.
Farmers’ frustration with this year’s supply deepened as the harvest progressed. When producers began processing the beans, they noticed excessive outer husks. It took more beans to fill bags. With most of the harvest completed, Brazil’s biggest arabica-coffee producing cooperative Cooxupe projected an 11% drop in output versus the previous season.
Regis Ricco, a consultant in Minas Gerais state, now expects Brazil’s arabica crop at around 30 million bags from 32 million bags at the beginning of August. The flow of truck deliveries reaching cooperatives is slower than usual. It’s “as if we were in an off-season,” he said.
Brazil’s national supply company Conab will update its estimate for the nation’s coffee crop on Sept. 20.
Read more at Bloomberg.com