Coffee market awaits monsoon report from Brazil

Coffee prices have not seen any major recovery after having fallen to 12-year lows last year. The price movement of the commodity will now depend upon the rains in Brazil and how much it supports the new crop. The market is waiting for a clearer picture that will emerge in February. 

In September last year, Arabica coffee futures in Intercontinental Exchange (ICE) had declined to touch 97.3 cents per pound, lowest since July 2006. Prices have been falling from 140 cents in 2017 due to good crop in three large coffee producing countries- Brazil, Vietnam and Columbia. At that time, the global crop was estimated to be 5.7 per cent higher without a similar growth in consumption.

The stock levels in the global market also had gone up after these large producers were selling off their produce to make most of the weak currencies. Global exports had reached record high levels when prices slipped to 12-year lows.

In the next two months, a slight recovery was witnessed in the coffee market. Multi-year low prices were attracting investor interest in the commodity.

However, prices have not seen any major recovery ever since. Arabica prices are currently trading around 102 – 103 cents per pound in ICE, which is just 5 cents more than the 12-year low levels.

‘Going ahead, much will depend upon the rainfall in Brazil and how it shapes up the crop in that country. Brazil has just started receiving rains. By February, we will have a better picture of the rainfall and the crop estimates too will arrive by then,” said Ramesh Rajah, president, Coffee Exporters Association.

Though Indian coffee is currently priced at a slight premium over the international rates, they are still much lower than the cost of production.

“An efficient zero-debt farm can produce a bag of Arabica for Rs 8000. But currently Arabica fetches only Rs 7000 per bag at the farm-gate level. The cost of production is not getting covered by the current price levels,” said Rajah.

However, farmers are holding on to their produce in anticipation of better prices. Hence the exports in the first half of the year is expected to be at least five per cent lower than last year levels. Lower prices and lesser carryover stocks due to smaller crop last year also will hit the exports this year.

In 2018, coffee exports from India declined 7.36 per cent on a year-on-year basis to 3.50 lakh tonnes. Initially when the rupee had weakened against the US dollar, exporters were shipping coffee in large quantities. When rupee fell to multi-year lows, the coffee stocks had started depleting. In the subsequent months, lower coffee prices as well as recovery in rupee rates led to shrinkage in coffee exports, leading to an overall decline.

The market is awaiting news from Brazil to understand the movement in the prices. “If Brazil has lower rainfall and smaller crop, prices can move up by 10 to 20 per cent. But on the other hand, if rains support a good crop, prices can further fall by 10 to 20 per cent. Indian prices too will follow the international trend,” said Rajah. If prices fall by 10 to 20 per cent coffee will once again see multi-year low prices in 2019.

Columnist: 
Sangeetha G.