Cofco Sees Risk of Coffee Shortages on Colombia and Brazil Crops

By Publications Checkout
Cofco Sees Risk of Coffee Shortages on Colombia and Brazil Crops

The coffee market could face shortages next season amid risks for Colombia’s crop and with top grower Brazil in the lower-yielding part of a two-year cycle, according to Cofco International.

Heavy rains and lower prices are delaying harvesting and sales of the mid-crop in Colombia, the second-largest producer of the arabica variety favoured by Starbucks. The rain delayed maturation of plants and has led to smaller and more dispersed flowering for the next crop, which could curb harvest potential, said Joseph Reiner, global head of coffee at the trading arm of China’s top food company.

Any reduced supply from Colombia would add to smaller output from top grower Brazil, which is currently gathering this year’s crop. Global production will fall short of demand by 4.4 million bags in the 2017-18 season that starts in October in most countries, Marex Spectron Group Ltd. estimates, and Cofco’s forecast is close to that, Reiner said, declining to provide an exact figure.

“This delay to the mid-crop is a function of excess rainfall and prices that aren’t providing the necessary incentive for farmers to sell,” Reiner said in a phone interview Tuesday. “All of this stresses plants and when we saw similar situations in the past, the following harvest was impacted. We have raised a red flag for the next main crop.”

Arabica futures have rebounded about 12 percent since touching a 15-month low in June in New York. In London, the robusta variety is up 15 percent from a seven-month low set in April.

ADVERTISEMENT

Heavy rain meant Colombian coffee production fell 9 percent in June, following an almost 23 percent drop in May, according data from the Colombian Coffee Federation. The nation usually gathers a smaller crop, known as mitaca, from April and harvesting of the main crop starts in October.

Brazilian farmers are already collecting their 2017-18 crop and output will fall because trees are in the lower-yielding half of their cycle. Traders expect production will total 48 million to 52 million bags, with Cofco’s estimate roughly in the middle of the range, Reiner said. The company will conduct another study of Brazil’s crop when harvesting reaches 50 to 60 percent, he said.

“When we look at demand, what we know about the mitaca and Brazil so far, and we look at Vietnam, there’s a good possibility of a shortage,” he said.

While output will rise next season in Vietnam, the top grower of robusta, the planted coffee area has stagnated amid a shift into pepper in recent years, Reiner said. Coffee output this season and the next will average about 26 million to 27 million bags, Cofco estimates.

A shortage of robusta this season pushed arabica’s premium over the beans last month to the lowest since at least 2008. The narrower gap means roasters around the world have started using more arabica, Reiner said. Robusta is favored for instant coffee.

ADVERTISEMENT

“We have started to see more demand for some Brazilian beans of either lower grade or older age, and also for some older Central American coffees that are stored in producing countries," he said. “We are seeing a lot of demand for these arabicas that are trading at bigger discounts.”

While exchange-certified stockpiles aren’t yet reflecting that demand, traders will keep a close eye on private and bourse- inventory data this month as it’s likely drawdowns will start, according to Reiner.

Global coffee demand continues to grow and Cofco is positive about consumption in Asia as the middle class expands. China’s demand trend in the decade to 2014 is similar to that of Japan in the 10 years to 1973, and Japan is now a large consumer, he said.

“ China should soon surpass Vietnam and India in terms of consumption,” Reiner said. “The majority of the Asian nations are seeing double-digit growth.”

News by Bloomberg, edited by Hospitality Ireland