Porto Alegre, October 14th, 2021 – Coffee has entered another bullish trajectory, with the Dec/21 position testing new highs and widening the distance from the psychological mark of 200 cents on ICE US. The market has raised the level of performance in NY, reflecting fears around supply. Besides the production losses of Brazil’s 2021 crop, the setbacks with coffee delivery in Colombia have quite concerned buyers. On the other hand, the loss of the potential of the next Brazilian crop, due to both drought and frost, could prolong the problems with the world coffee supply for a longer period. All of this reinforces supply fears and stimulates the demand for ICE-certified stocks.
The return of rains to coffee areas in Brazil has not been enough, so far, to break the pessimism about the production of Brazil’s 2022 crop. Many growers believe the rains came too late, so the long drought will result in strong consequences to the productive potential of the next season. In this sense, arabica supply will likely be short in 2022, which helps to strengthen the upward spiral of prices on ICE US.
Perhaps the confirmation of more abundant rainfall over the next few weeks helps to mitigate this negative logic. However, the fall in certified stocks on ICE US continues to support gains in NY.
Colombian milds gain value
The biggest concern of the market, at this moment, is the very short supply available and the supply noise. Colombian growers have not delivered coffee to settle their sales in advance, which creates problems in the supply chain of the world’s main source of mild coffees. It is estimated that around 1 million bags failed to be delivered. This has already caused the price of Excelsior Epoca coffee from Colombia to rise to 260 cents/lb FOB Buenaventura. The gains in Colombian coffee ended up resulting in a relative appreciation of this description against its peers. So, the premium paid for it rose to +51 cents against ICE US, taking into account the ICO’s reference price for the Colombian mild coffee.
Central American coffees showed a slight negative adjustment, indicated at +33.49 cents against ICE US. The price of Central American milds reflects, albeit timidly, the arrival of new supply in the market, given the beginning of the 21/22 business cycle now in October. The average differential of Brazilian naturals ended up falling to -11 cents (sell price), pressured by the gains on ICE US.
Robusta coffee on ICE Europe failed to keep up with the rise of New York arabica. Vietnam’s arrival on the market along with a more relaxed demand stance justify this performance. This caused the ICO’s robusta differential to fall to -112 cents (sell price) against ICE US.