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BUSINESS: Low prices ahead for coffee

Rising global exports and inventory levels weaken prices: ICO

The International Coffee Organisation’s (ICO) has predicted low prices into the near future for both the global Robusta and Arabica crop.

In its latest April report, the ICO notes that growers such as Uganda, Indonesia, Honduras, India and Peru, who  contribute almost a quarter of global exports, significantly increased their shipments in the first months of coffee year 2016/17 and this pushed prices down.

“In combination with a positive outlook for the 2017/18 crop in Brazil and Vietnam previous supply concerns seem to have been largely alleviated and the market lacks any strong signals to reverse from its gradual decline,” the ICO statement said.

The report indicates that in March the composite indicator price continued the slow decline observed since the beginning of the year. The monthly average of the composite indicator was down by 2.6 per cent to 134.07 US cents per pound in March from 137.68 US cents per pound recorded in February.

Over the period under review, in February Uganda exported 397.883 bags of 60kgs each comprising 301,756 bags Robusta and 06,127 bags Arabica.  That was a slight decline from the 404,673 bags (Robusta 304,787 and 99,886 Arabica) exported in January, according Uganda Coffee Development Authority figures. However, they remained much higher than the 214, 856 bags exported over the same period.

The group indicators were showing a mixed picture, the ICO says. On the one hand, the ICO reported that the monthly averages of the Arabica groups significantly decreased, with Colombian Milds, Other Milds and Brazilian Naturals down by 3.2 per cent, 3.7 per cent and 4 per cent, respectively. Prices for Robustas on the other hand remained broadly stable with little in‐month variation.

The March monthly average of 106.73 US cents per pound constitutes a marginal increase of 0.2 per cent compared to 106.49 US cents per pound recorded in February. The arbitrage between the London and New York futures markets continued to decrease, down by 11.6 per cent from 50.18 US cents per pound to 44.37 US cents per pound, the ICO said.

The ICO says such rising supply on the back of ample supply despite the poor Conilon/Robusta harvest in Brazil and Vietnam had the biggest impact on coffee prices in March.

The World market prices for Robusta have been relatively high as indicated by the ICO Robusta indicator price, which has been consistently above 100 US cents per pound since October 2016.

This has led to the drawdown of stocks in Vietnam somewhat compensating for hampered Robusta exports from Brazil. In the first five months of coffee year 2016/17 (October 2016 to February 2017) Vietnam is estimated to have shipped 10.18 million bags, an increase of 11.5 per cent compared to the same period last year.

At the same time, Arabica availability on the market remains high. Colombia’s production and exports continue to grow as resistant coffee trees planted following the coffee leaf rust crisis in 2010 have become fully productive.

The highest increase was observed in Honduras with exports totaling 2.31 million bags, up by 35.6 per cent compared to 1.71 million in 2015/16. However, it remains to be seen if this growth is sustainable as reports emerge of a new outbreak of leaf rust in Honduras.

Certified stocks on the New York and London futures markets have increased further by 2.4 per cent (from 1.49 million bags in February to 1.53 million bags in March) and 1.9 per cent (from 2.80 million bags in February to 2.85 million bags in March) respectively.

At the same time, the ICO said that inventories in consuming countries continued to build up. For example, in February coffee stocks in the United States reached 6.45 million bags, the highest level since May 2003.

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editor@independent.co.ug

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