Bloomberg News

Coffee Reserves Seen at 2000 Low on Indonesian Rain: Commodities

August 27, 2013

Coffee Reserves Seen at 2000 Low on Indonesian Rain

A worker spreads out harvested Robusta coffee berries to sun dry at a coffee plantation in Tanggamus, Lampung Province, Indonesia. Photographer: Dimas Ardian/Bloomberg

Robusta coffee stockpiles are poised to slump to a 13-year low as torrential rain in Indonesia disrupts supply and consumers wait three more months before Vietnam’s new crop gets shipped.

Rain in the largest growing regions of Indonesia, the biggest producer behind Vietnam and Brazil, was as much as twice the 30-year average since April, MDA Weather Services says. Inventories certified by NYSE Liffe will tumble 34 percent to 52,000 metric tons by the end of 2013, the lowest since May 2000, the average of 10 trader estimates compiled by Bloomberg shows. Futures will gain 13 percent to $2,000 a ton over the same time, according to the median of seven forecasts.

The deluge delayed harvesting and drying of beans. Nedcoffee BV, an Amsterdam-based trader with Indonesian offices, says deliveries from farms have been about 16 percent lower than last year. Stockpiles already tumbled 38 percent since mid-May as traders in Vietnam curbed cargoes to hold out for higher prices. Euromonitor International Ltd. predicts a 3.6 percent expansion in the market for instant coffee, mostly made from robusta, to a record $29.2 billion.

“It’s tight into the fourth quarter,” said James Hearn, co-head of agriculture at Marex Spectron Group Ltd., a brokerage with more than 600 staff and based in London. “The market will continue to need the certified stocks. The main question at the moment is how far and how fast the stocks will fall.”

J.M. Smucker

Robusta fell 7.9 percent to $1,772 this year on NYSE Liffe in London, while arabica, the most-consumed coffee, dropped 19 percent to $1.169 a pound ($2,577 a ton) on ICE Futures U.S. in New York. The Standard & Poor’s GSCI gauge of 24 commodities rose 2.5 percent, led by crude oil, cotton and cocoa. The MSCI All-Country World Index of shares gained 8 percent and the Bloomberg U.S. Treasury Bond Index lost 3.4 percent.

Demand for robusta is stronger than arabica, according to Mark T. Smucker, the president of U.S. retail coffee at The J.M. Smucker Co. The Orrville, Ohio-based company makes Folgers instant coffee.

Prices for both types of coffee declined this year as traders anticipated a supply glut. Robusta production will rise 3.8 percent to 65.3 million bags in the 2013-14 season as demand expands 1.6 percent to 63.8 million bags, Macquarie Group Ltd. says. A bag weighs 132 pounds. The bank says the surplus in arabica will be almost three times larger at 4.2 million bags.

Next Harvest

The robusta surplus has yet to show up in exchange-monitored warehouses. Farmers in Vietnam are still storing 140,000 tons from the last harvest after local prices dropped 13 percent in the second quarter, according to the median of nine trader and shipper estimates compiled by Bloomberg and data from the Dak Lak Trade & Tourism Center.

A rally in prices may prompt Vietnamese growers to sell some of the beans they have stored from the current crop. The first significant shipments from the new crop typically are made in December, arriving in Europe about a month later, leaving an absence of new supply for the next several months.

“If you plan all your shipments from the new crop for October, I doubt you will find it,” said Renaud de Kerchove from Ecom Agroindustrial Corp. in Pully, Switzerland, referring to supplies from Vietnam. “But you can still find some coffee from this crop that people will be happy to sell if the markets rally enough,” said the managing director of coffee for Europe and Middle East at the company which traded 11 million bags in 2011.

Accelerate Shipments

Vietnam’s 2013-14 harvest probably will increase 17 percent to a record 1.7 million tons, according to the median of nine estimates from traders and shippers in the country. Farmers expanded plantations and rain boosted growth, said Alexander Gruber, the Ho Chi Minh City-based trading manager at Tong Teik Pte, a coffee company owned by RCMA Commodities Asia Pte. While prices may rally to $2,050 next month, they will retreat to $1,850 by the end of the year, he said.

Rain in Indonesia probably will be “near normal” in the next two months, said Donald Keeney, a senior agricultural meteorologist at MDA Weather Services in Gaithersburg, Maryland. That may allow farmers to dry beans and accelerate farm deliveries that had fallen to 129,844 tons in the five months through Aug. 2, from 155,152 tons a year earlier, according to Nedcoffee.

Physical Supply

More shipments may still not boost the European stockpiles certified by NYSE Liffe as being suitable for delivery into its contracts if prices stay little changed. Futures are trading at a discount to physical supply from producing nations, said Freddie Schol, a trading manager at Nedcoffee, which mostly transacts robusta. That makes it unprofitable to direct cargoes into bourse inventories.

Beans from Vietnam for shipment in September and October were at a premium of $120 a ton to the exchange price last week, according to Volcafe Ltd., a trading company in Winterthur, Switzerland. Indonesian supply for the same months cost $130 more. Brazilian robusta is selling at a premium of about 2 cents to 5 cents a pound ($44 to $110 a ton), according to Flavour Coffee, a brokerage in Rio de Janeiro.

NYSE Liffe-monitored inventories dropped to 78,750 tons on Aug. 19, the lowest since August 2007. They have declined 81 percent from the record 417,420 tons reached in July 2011, bourse data show. The 52,000 tons anticipated in the Bloomberg survey would be the lowest since May 2000, according to Marex. Inventories of arabica tracked by ICE Futures U.S. expanded 9 percent to 2.8 million bags this year.

Arabica Premium

That signals buyers favor cheaper robusta beans, said Judy Ganes-Chase, the president of J. Ganes Consulting in Panama City, Panama. Arabica’s premium over robusta is now at 37 cents a pound, from 87 cents in September. Arabica is mostly used in specialty coffees sold by Starbucks Corp. (SBUX:US) and other coffee shops. Money managers switched to being net long, or betting on higher robusta prices, as of Aug. 20. They had been net short, or betting on lower prices, since May 28, NYSE Liffe data show.

Falling arabica prices may limit gains in robusta, Hearn said. The Brazilian real’s 14 percent retreat against the dollar this year increased revenue from dollar-denominated coffee sales and encouraged exporters to ship more beans.

Sales of instant coffee by volume will expand 3.7 percent this year, faster than the 2.3 percent gain for fresh ground coffee and beans, according to Euromonitor, a consumer research company in London. Nestle SA (NESN), the Vevey, Switzerland-based maker of Nescafe, accounted for 49 percent of global instant coffee sales last year, Euromonitor data show.

“There’s plenty of arabica supply out there,” Smucker of J.M. Smucker said on a conference call with analysts on Aug. 21. “The demand for robusta is a little stronger, so we might be a little more bullish on robusta.”

To contact the reporters on this story: Isis Almeida in London at ialmeida3@bloomberg.net; Diep Ngoc Pham in Hanoi at dpham5@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net


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