COFFEE
SUPPLY AND DEMAND
QUARTERLY REPORT
MAY 2013
SUPPLY AND DEMAND
QUARTERLY REPORT
MAY 2013
FOCUS
There are two seasons of consecutive surplus for the
global coffee market, totalling 9.5 mio bags, in 12/13
and 13/14.
Most of this surplus falls in Brazilian arabica.
Brazilian arabica production is very large in both
seasons: there is no 13/14 off-cycle. Brazilian
arabica demand is not yet returning to previous high
levels.
Because robusta supply is still growing strongly,
there is enough robusta to cover the new robusta
demand in non-traditional markets, and enough to
ensure that last year’s Brazilian arabica-to-robusta
substitution in traditional markets won’t be
reversed. Vietnam should produce around 30 mio
bags in 13/14. A small statistical robusta surplus is in
place, but it probably won’t show up in visible
stocks, just in expanding pipelines as robusta
demand is growing so fast.
Rust-affected mild crops in Central America and in
Peru are still a real concern. Relatively inelastic mild
arabica demand means that 13/14 will see a mild
arabica deficit, in the shadow of a big Brazil arabica
surplus. This should be a classic differential story,
but could coffee surprise us again?
continue. Productive tissue for 14/15 is already
good, but there is a frost season and a rainy season
to get through before we can call a very large 14/15
on-cycle.
The internal market in Brazil has been very firm in
recent weeks, with replacement differentials trading
higher than export differentials for long periods of
time. Producers are disciplined sellers.
Vietnam:
Green exports in the period October-April 12/13 are
up 8% on exports in the same period last year. The
rate of shipment will slow down in the coming
months. The internal market, like Brazil, is very firm.
The new 13/14 crop is fixed on the trees, with some
flowering having occurred very early, due to
unseasonal showers. The first large survey will be
done in June, but initial indications from a number of
farms we visit every April to compare crop
development, are showing us that cherry load on the
trees is up 33%.
I. COFFEE ORIGINS
These findings indicate a strong uptrend in
productivity, but the size of the increase cannot be
directly converted to a crop forecast yet. We are
comfortable using a 30 mio bag crop number for
Vietnam for 13/14, until we have more information
in June.
Brazil:
Colombia:
The 13/14 Brazilian crop should have been an offcycle, but it’s going to be bigger than the 12/13
crop.
‘
Our December 2012 crop survey showed such
deterioration in the economic health of the
Colombian coffee farming sector compared to the
previous survey, that we reduced our crop forecast
markedly to 6.5 mio bags. Since then, export and
production statistics Oct-April turned out to be 5.1
and 5.5 mio bags respectively. Even with 2 mio bags
of green imports into Colombia from Peru, Ecuador,
Brazil and Venezuela, these statistics (and an active
internal market) are suggesting that the 12/13 crop
is bigger than our low estimate. We thus revise it up
to 7.5 mio bags. Coffee has been flowing well in the
internal market, as is logical given the new coffee
subsidy equivalent to 40 US cents/lb.
The 12/13 crop had the potential of more than 60
mio bags, but due to post-flowering dryness in
October 2011, many flowers were aborted, and the
crop fell short. Thus, trees had energy to produce
more productive tissue than usual, and so had gas in
the tank for 13/14. Ideal weather followed, new
area is coming into production, and fertilizer use and
disease control has been high. After concluding our
second crop survey of the season, we believe
Brazilian coffee production in 13/14 will reach
almost 58 mio bags, 1 mio bags more than 12/13.
Investment in coffee has been strong in the last
couple of years, but with lower prices, this may not
Central America:
Due to a large carryover, 12/13 exports from this
rust-affected region have so far surprised to the
SUPPLY AND DEMAND
QUARTERLY REPORT
MAY 2013
upside. Oct-March exports from the five main CAM
origins are up 2% on the same period in 11/12, while
Oct-April exports should be around 1% up. Production
in 12/13 is estimated at 13.1 mio bags, down 7% on
the 14.1 mio bags produced in 11/12, which was the
highest regional crop in more than a decade. The
13/14 crop is more severely affected, and we see
output falling a further 2.5 mio bags to 10.7 mio bags.
Crop surveys start next month in the region.
Peru:
Peru is now harvesting a rust-affected crop, and just as
Central America experienced delays in the initial
coffee flow a few months ago, the Peruvian internal
market is feeling a lack of coffee at a time of year
when coffee is normally flowing freely.
We estimate 13/14 Peruvian production at 4.0 mio
bags, with rust having reduced a 5+ mio bag potential
production.
Indonesia:
Rains have delayed the new robusta crop arrivals in
Sumatra, and replacement levels are particularly high.
We estimate the new crop to be down 10% on the
super crop last year.
Uganda:
Strong rains in Uganda do not seem to be hampering
the arrival of the good Western robusta fly crop.
Uganda production is estimated up 18% on the year,
at 3.3 mio bags.
II. COFFEE DEMAND
The main amendment we have made since the last
quarterly is to North American demand, which we
have revised up by 0.3 mio bags this year, and by 0.7
mio bags next year.
Of all the traditional markets, the USA is showing the
strongest growth. In the retail section, single serve
coffees can’t be produced quickly enough. Sales of
traditional bagged roast coffee are also growing.
Disappearance in the USA grew by 4% last year. This
year and next, we see demand growing by 2.5% per
year, which may be a conservative forecast.
Because it is a high-income country, the US market fits
into the relatively price-inelastic, income-inelastic part
of the coffee demand curve. That is, in total market
terms, coffee demand growth is driven by population
growth, cultural variables and innovations like single
serve. The effect of high price or lower income in the
US is one of consumers changing to a cheaper blend,
rather than drinking less coffee. The effect of low
coffee price or higher income (both happening this
year), should mean that the 2-3% demand growth
trend does not change, but there is a possibility of a
move to better quality coffees. How this pans out in
the coming season, when washed milds are much less
available, is a hard one to tackle.
The other traditional markets, Western Europe and
Japan, see flat coffee demand, while non-traditional
markets see 5% overall coffee demand growth per
year. This is led by Asian markets, with a regional
headline demand growth figure of 7%. The soluble
drinking countries of Thailand, Malaysia, Philippines
and Indonesia have experienced double-digit coffee
demand growth in recent years. The more mature
coffee markets of Australia and South Korea have seen
a huge swing to arabica, and are also seeing very good
demand growth – just above North American rates.
Coffee demand will grow by 4.5 mio bags this year and
next. We do not see total arabica demand falling again
like it did in 2012. So this year, 15% of the 4.5 mio bags
is new arabica demand, and next year, 45%. Coffee
demand will approach 150 mio bags by the 13/14
season.
III. BALANCES AND STOCKS
The Brazilian arabica surplus of 9 mio bags over two
years is dwarfing everything else. We estimate that
carryover stocks of Brazil arabica rise to 13 mio bags
this June, then to 15 mio bags in June 2014. Consumer
port stocks of the same coffee will stay in the 3-4 mio
bag range. Robusta has a 2 mio bag surplus over two
seasons, and carryover stocks at origin we estimate
steady at 4 mio bags, while consumer port stocks rise
to 7 mio bags by Sep 2014 (or invisible pipeline stocks
rise due to soaring robusta demand). Non-Brazil
arabica has a deficit of 1 mio bags over two years.
Origin stocks we estimate steady at 6 mio bags.
Consumer port stocks are at a healthy level of 10 mio
bags now, but they have to fall by 2014, to 9 mio bags.
Most of the coffee market surplus is being held
internally in Brazil, so the financial strength of Brazilian
farmers is key to how the fundamentals interact with
the coffee price.
SUPPLY AND DEMAND
QUARTERLY REPORT
MAY 2013
PRODUCTION BY COUNTRY
CONSUMPTION BY REGION
mio 60kg bags
2011/12
2012/13
2013/14
Brazil
Vietnam
Colombia
Indonesia
India
Peru
Honduras
Ethiopia
Mexico
Guatemala
Uganda
Côte d’Ivoire
Costa Rica
El Salvador
Nicaragua
China
Others
48.0
28.0
7.0
6.2
6.0
5.1
5.7
4.8
4.3
3.6
2.8
2.1
1.6
1.3
1.8
1.0
10.7
56.8
26.5
7.5
11.7
5.7
4.2
5.1
4.9
4.5
3.5
3.3
1.7
1.6
1.2
1.7
1.0
10.9
57.8
30.0
7.5
10.5
5.7
4.0
4.0
4.9
3.9
2.8
3.2
1.9
1.4
1.1
1.4
1.0
11.0
TOTAL
140.1
151.8
152.0
CONSUMPTION BY TYPE
mio 60kg bags
2011/12
2012/13
2013/14
EU27
40.7
41.1
41.3
Other Europe
8.3
8.6
8.8
North America
25.8
26.4
27.1
Asia
28.7
30.7
32.8
Africa
8.1
8.5
9.0
Latin America
28.9
29.6
30.3
Extra Volume Coffee
Consumption Per Year:
+3.7
+4.5
+4.5
growth
3%
3%
3%
TOTAL
140.4
144.9
149.4
BALANCE BY TYPE
2011/12
2012/13
2013/14
mio 60kg bags
2011/12
2012/13
2013/14
growth
Total Robusta
growth
Brazil Arabica
growth
Non-Brazil Arabica
growth
Total Arabica
15%
62.9
-13%
33.4
2%
44.1
-5%
77.5
6%
66.8
2%
34.0
0%
44.1
1%
78.1
4%
69.3
10%
37.3
-3%
42.8
3%
80.1
Robusta
Production
Consumption
-0.5
62.4
62.9
1.2
68.0
66.8
0.7
70.0
69.3
Brazil Arabica
Production
Consumption
-1.1
32.3
33.4
5.3
39.3
34.0
3.4
40.7
37.3
Market Share
Robusta
Brazil Arabica
Non-Brazil Arabica
45%
24%
31%
46%
23%
30%
46%
25%
29%
Non-Brazil Arabica
Production
Consumption
1.2
45.3
44.1
0.4
44.5
44.1
-1.5
41.3
42.8
140.4
144.9
149.4
TOTAL
-0.3
6.9
2.6
mio 60kg bags
TOTAL
SUPPLY AND DEMAND
QUARTERLY REPORT
MAY 2013
NON-BRAZIL ARABICA SUPPLY/DEMAND
1.5
BRAZIL ARABICA SUPPLY/DEMAND
47
15.0
balance
1.0
supply
0.5
demand
45
balance
supply
46
demand
10.0
40
45
-1.0
43
goo
-1.5
5.0
35
0.0
30
-5.0
25
mio bags
44
-0.5
mio bags
mio bags
mio bags
0.0
42
-2.0
41
-2.5
-3.0
-10.0
40
03/04
04/05
05/06
06/07
07/08
08/09
09/10
10/11
11/12
12/13
20
02/03
13/14
03/04
ROBUSTA SUPPLY/DEMAND
05/06
06/07
07/08
08/09
09/10
10/11
11/12
12/13
13/14
TOTAL SUPPLY/DEMAND
4.0
75
15.0
70
supply
160
balance
supply
demand
balance
3.0
04/05
150
10.0
2.0
65
demand
1.0
140
55
-1.0
50
mio bags
0.0
mio bags
mio bags
60
5.0
130
0.0
120
-2.0
45
-3.0
-5.0
110
40
-4.0
-5.0
35
02/03
03/04
04/05
05/06
06/07
07/08
08/09
09/10
10/11
11/12
12/13
13/14
-10.0
100
02/03
03/04
04/05
05/06
06/07
NEW YORK / LONDON ARBITRAGE
07/08
08/09
09/10
10/11
11/12
12/13
13/14
mio bags
02/03
35
Arabica
Robusta
10
25
15
10
6
4
0
0
08/09
10/11
13/14
8
13/14
2
Robusta
12/13
Arabica
12/13
12
11/12
INDONESIAN PRODUCTION
11/12
5
10/11
VIETNAMESE PRODUCTION
09/10
0
09/10
0
08/09
10
07/08
1
07/08
2
06/07
4
06/07
5
60
05/06
70
05/06
Conillon
6
04/05
PERUVIAN PRODUCTION
04/05
13/14
12/13
11/12
10/11
09/10
08/09
07/08
06/07
05/06
04/05
0
03/04
Mexico
03/04
4
03/04
Guatemala
02/03
6
02/03
Costa Rica
01/02
00/01
Nicaragua
mio bags
El Salvador
02/03
12/13
13/14
18
01/02
10/11
11/12
C. AMERICAN & MEXICAN PRODUCTION
01/02
08/09
09/10
10
00/01
3
mio bags
06/07
07/08
20
00/01
20
mio bags
04/05
05/06
2
13/14
02/03
03/04
8
12/13
00/01
01/02
mio bags
12
13/14
11/12
10/11
09/10
08/09
07/08
06/07
05/06
04/05
03/04
02/03
01/02
00/01
mio bags
14
12/13
11/12
10/11
09/10
08/09
07/08
06/07
05/06
04/05
03/04
02/03
30
01/02
00/01
mio bags
SUPPLY AND DEMAND
QUARTERLY REPORT
MAY 2013
COLOMBIAN PRODUCTION
14
16
12
10
8
6
4
Honduras
2
0
BRAZILIAN PRODUCTION
Arabica
50
40
30
20
SUPPLY AND DEMAND
QUARTERLY REPORT
MAY 2013
DEMAND: ROBUSTA WINS, ARABICA LOSES
THE NEW COFFEE DEMAND
12
Annual change in robusta demand
10
Annual change in arabica demand
8
mio bags
6
4
2
0
-2
-4
13/14
12/13
TOTAL COFFEE END-SEASON STOCKS
TOTAL STOCKS VS. STOCK/DEMAND RATIO
50
ARABICA STOCKS VS. STOCK/DEMAND RATIO
55%
Arabica Stock
stock/demand ratio
13
0.3
11
0.25
50%
Arabica Stock/Demand Ratio
stock/demand ratio
35
ROBUSTA STOCKS VS. STOCK/DEMAND RATIO
40%
mio bags
30
9
0.2
35%
25
7
0.15
Robusta Stock
30%
Robusta Stock/Demand Ratio
13/14
12/13
11/12
10/11
09/10
08/09
07/08
06/07
05/06
04/05
03/04
02/03
0.1
01/02
5
00/01
13/14
12/13
11/12
10/11
09/10
08/09
07/08
06/07
05/06
04/05
03/04
02/03
25%
01/02
20
00/01
mio bags
45%
stock/demand ratio
40
13/14
24%
13/14
11/12
12/13
10/11
09/10
08/09
07/08
05/06
06/07
04/05
03/04
02/03
00/01
01/02
30
12/13
Consumer
Milds
29%
11/12
5
-
35
06/07
Consumer
Brazils
05/06
10
34%
04/05
Consumer
Robusta
15
39%
40
03/04
20
00/01
mio bags
Origin
Milds
25
02/03
Origin
Robusta
30
Total Stock/Demand Ratio
45
01/02
35
10/11
Origin
Brazils
mio bags
40
44%
Total Stock
09/10
45
08/09
50
07/08
11/12
10/11
09/10
08/09
07/08
06/07
05/06
04/05
03/04
02/03
01/02
-6
SUPPLY AND DEMAND
QUARTERLY REPORT
MAY 2013
DIFFS BRAZIL 93-13
DIFFS PERU 93-13
40
40
20
30
MCM (Grade 2)
Grade 1
20
cts/lb FOB vs. ‘C’
cts/lb FOB vs. ‘C’
0
-20
primeiro
-40
10
0
fine cup mtgb
washed
-60
-10
-80
-20
Jul 93
Jul 95
Jul 97
Jul 99
Jul 01
Jul 03
Jul 05
Jul 07
Jul 09
Jul 93
Jul 11
DIFFS COLOMBIA 93-13
50
100
40
excelso
30
supremo
20
80
Jul 99
Jul 01
Jul 03
Jul 05
Jul 07
Jul 09
Jul 11
Jul 09
Jul 11
costa rica hb
guatemala hb
honduras hg
salvador hg
cts/lb FOB vs. ‘C’
cts/lb FOB vs. ‘C’
Jul 97
DIFFS CENTRALS 93-13
120
60
40
20
10
0
-10
0
-20
-20
Jul 93
Jul 95
-30
Jul 95
Jul 97
Jul 99
Jul 01
Jul 03
Jul 05
Jul 07
Jul 09
Jul 93
Jul 11
DIFFS ROBUSTA 93-13
800
Jul 97
Jul 99
Jul 01
Jul 03
Jul 05
Jul 07
DIFFS AFRICA/ASIAN ARABICA 93-13
250
vietnam gII
600
Jul 95
kenya ab faq
ethiopia sidamo 2
200
indo ek80
ethiopia djimmah
uganda scr 15
cts/lb FOB vs. ‘C’
400
USD FOB vs. Liffe
150
200
png y-grade
100
50
0
0
-200
-50
-400
Jul 93
-100
Jul 95
Jul 97
Jul 99
Jul 01
Jul 03
Jul 05
Jul 07
Jul 09
Jul 11
Jul 93
Jul 95
Jul 97
Jul 99
Jul 01
Jul 03
Jul 05
Jul 07
Jul 09
Jul 11