Market turns negative as Robusta prices decline

The International Coffee Organization’s (ICO) composite indicator price continued to decline in November 2017, though nearly all of the decrease occurred in prices for Robusta. According to the ICO’s November Coffee Market Report, the indicator price averaged 117.26 US cents per pound, down 2.3 per cent from the average price in October. The ICO’s Arabica group indicators were generally stable in November. The difference in the average price for all three Arabica groups in November 2017 compared to October amounted to less than half a per cent. However, the monthly average for the Robusta group decreased by 7.2 per cent to an average of 91.33 US cents per pound. The average arbitrage in November, as measured on the New York and London futures markets, increased by 13.8 per cent to 48.50 US cents per pound. Meanwhile intra-day volatility of the ICO composite indicator price decreased further by 0.4 percentage points to 5.4 per cent. Exports for the first month of the new coffee year were 11.4 per cent lower than the same month last year on 8.8 million bags. Shipments of Arabica were 9.9 per cent lower at 5.7 million bags. Robustas declined to 3.1 million bags, 14 per cent lower than last year, due largely to an estimated 30.3 per cent decrease in exports from Vietnam. Despite the downturn in global exports in October 2017, world exports during the previous twelve months (November 2016 to October 2017) increased by 2.4 per cent compared to the same period one year ago. Exports from most regions declined in October 2017 compared to one year ago. Asia & Oceania shipped 2.87 million bags in October 2017, 18.7 per cent lower than last year while exports from South America decreased by 14 per cent to 4.55 million bags. This was a result of lower exports from Brazil (-18.3 per cent) and Colombia (-8.7 per cent), the ICO said. Reduced output from Brazil in crop year 2017/18, due to the biennial crop cycle, decreased the availability for export while heavy rains in Colombia have delayed harvesting of its 2017/18 crop. Exports from Central America and Mexico were 3.2 per cent lower compared with exports in October 2016. This is largely accounted by a 67.1 per cent decrease from Costa Rica and a 20.2 per cent decrease from Honduras. However, exports from Honduras in October 2017 remain well above the five-year average volume of October shipments. In contrast, exports from Africa rose by 0.28 per cent to 0.98 million bags in October 2017, led by increases in Uganda (82.5 per cent) and Ethiopia (31.8 per cent). Exports may pick up later in the coffee year as world coffee production for crop year 2017/18 is preliminarily projected to increase by 0.8 per cent to 158.69 million bags. Production in South America is projected to decrease by 3.1 per cent due in part to the lower than expected output in Brazil during crop year 2017/18. Africa’s output could increase by 4.1 per cent, led by ongoing growth in Uganda where its replanting efforts in recent years are beginning to bear fruit. Production in Asia and Oceania is also expected to grow by 4.4 per cent as beneficial weather and adequate water supplies during the initial stages of growth are expected to boost yields in Vietnam, the largest regional producer and second largest globally. Production in Central America and Mexico is expected to expand by 4.3 per cent, following an increase of 16.3 per cent in crop year 2016/17 as some of these countries have recovered from the outbreak of coffee leaf rust several years ago. Before the outbreak of coffee leaf rust, production in Honduras grew at around 6.8 per cent per annum, reaching 5.89 million bags in crop year 2011/12. However, its production fell by 22.2 per cent over the next two crop years. Efforts were undertaken to combat this disease such as replanting with rust-resistant coffee trees and the provision of technical training to farmers. Since 2014/15, its production has grown at around 12.2 per cent a year, reaching a new record of 7.43 million bags in 2016/17. In 2017/18, it is estimated to be 8.35 million bags. Guatemala’s production was in decline between crop year 2000/01 and 2012/13 by an average of 2.1 per cent per year. Between 2011/12 and 2013/14, its output fell by 17.2 per cent to 3.19 million bags, which is the lowest level since 1988/89. In response to the outbreak, Guatemalan farmers replanted and pruned their trees, employed better crop management, and expanded the use of fumigation. As a result of these efforts, production increased to 3.31 million bags in 2014/15 and has continued to grow in the last two crop years. Production in both Costa Rica and El Salvador were on a downward trend since 2000/01, as annual production fell by 2.3 per cent and 3.1 per cent, respectively. The coffee leaf rust outbreak caused a further decline in output of 15.2 per cent in Costa Rica and 56.5 per cent in El Salvador from 2011/12 to 2013/14. While El Salvador’s production has generally increased since the 0.51 million bags produced in 2013, output remains wellbelow the average volume achieved before the outbreak. On the other hand, Costa Rica’s output has not grown since the outbreak, though the annual decline in the last three years has returned to the same level as before the outbreak. However, its production is preliminarily estimated to rise to 1.56 million bags in 2017/18. Nicaragua’s production grew at an annual average rate of 2.8 per cent per year between 2000/01 and 2011/12. After reaching 2.19 million bags in 2011/12, its output fell to 1.87 million bags in crop year 2012/13. However, unlike other countries in the region, its production rebounded to 2.06 million bags in 2013/14 though it fell to 1.90 million bags in the following crop year. Since then its production has grown about 6.6 per cent a year and is estimated at 2.3 million bags in 2016/17.

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