USDA: Stocks/Use Ratio the second lowest in more than 50 years.

World coffee supplies will end 2016-17 at among their tightest on record, as weak robusta bean output, sapped by the weakest Brazilian harvest in seven years, erodes the boost from a record arabica crop.

The US Department of Agriculture, in its first official estimates for world coffee market dynamics in 2016-17, forecast world stocks falling for a second successive year, this time by 3.9m bags, to close the season at 31.5m bags.

Inventories at that level would be the lowest since 2011-12 and – when compared with demand to calculate the “stocks-to-use” ratio – at 20.9% represent the second lowest reading on records going back more than 50 years.

The stocks-to-use ratio – in measuring the availability of inventories – gives an indication of the extent to which buyers are likely to be forced to pay up for supplies, and is thus viewed as a key pricing metric.

‘Spread of coffee rust’

The expectation of a drop in stocks comes despite the prospect of record world harvest of arabica beans in 2016-17, seen rising by nearly 7.8m bags to 94.1m bags, led by a jump in output in top grower Brazil.

“Brazil’s arabica production is forecast to jump 7.8m bags to a record 43.9m bags as yields improve,” the USDA said.

“Good blossoming between September and November was followed by ideal weather during the fruit-set and fruit development period in Minas Gerais and Sao Paulo, two regions that account for about 80% of [domestic] output.”

In Honduras, the world’s fourth-ranked arabica bean producer, “rust-resistant trees from recently renovated land are expected to propel output to a record 6.1m bags”, up 400,000 bags year on year.

However, a 300,000-bag drop in output is expected in second-ranked Colombia, “due to expected heavy rains towards the end of 2016″, and a forecast doubling, to 10%, in land in the central coffee region infested by cherry borer insect pest.

The forecast inundations, which would be more likely should a La Nina weather pattern set in, “will likely affect” the mitaca crop, which is harvested between April and June, the USDA said, with the rains “disrupting the flowering process as well as creating conditions conducive to the spread of coffee rust”.

‘Severe drought’

World output of robusta beans, meanwhile, will drop by nearly 5.4m bags to a five-year low of 61.6m bags, with weaker production expected in all of the top-five producers – Vietnam, Brazil, Indonesia, India and Uganda.

Vietnamese output is seen dropping 2.0m bags to 27.3m bags after “high temperatures combined with dry growing conditions between January and April to weaken yields”, the USDA said.

Meanwhile in Brazil, robusta bean production is seen dropping by 1.2m bags to a seven-year low of 12.1m bags “due to above-average temperatures and prolonged dry spells in Espirito Santo, where the vast majority [of Brazilian robusta coffee] is grown.

“Water shortages continue to limit irrigation, a common practice in the state.”

Output in Indonesia, the third-ranked robusta growing country, was seen falling by 1.8m bags year on year to 10.0m bags, “due to severe drought throughout much of the archipelago.

“Dry weather disrupted the flowering and ripening stage of cherry formation and was most acutely felt in lowland areas of southern Sumatra and Java where approximately 75% of the robusta crop is grown.”

Export implications

The impact on trade will be a drop in exports of 3.0m bags to 109.9m bags, led by a 1.9m-bag “plunge” to 6.1m bags in Indonesian shipments.

“World exports are expected to slip from last year’s record primarily due to lower shipments from Indonesia, Vietnam, and Brazil.”

Brazil’s exports will ease for a second-successive year, by 720,000 bags to 32.0m bags.

The decline will help Brazilian coffee inventories – arabica and robusta combined – stage a small rebound of 265,000 bags to 2.53m bags, although remaining well short of the high of nearly 12m bags reached in 2013-14.

Vietnam’s stocks will see a particular decline, to 3.5m bags.

“Following two years of elevated inventories, ending stocks are expected to fall 2.2m bags,”  said the USDA, whose data are based in the main on October-to-September marketing years, but with a few countries factored in on an April-to-March or July-to-June basis.

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