Coffee Falls As Market Forecasts Global Supply Glut

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Coffee futures are falling midweek after new forecasts suggest the industry will experience a global supply glut over the next 12 months. Coffee prices have cratered double digits this year, primarily because of slowing international demand. Will producers curtail their output levels to help rebalance the market or will major destinations ramp up production to take some market share?

September coffee futures dipped 0.10 cents, or 0.1%, to 97.7 cents per pound at 17:02 GMT on Wednesday on the US ICE Futures exchange. Coffee prices have tumbled nearly 0.5% over the last week, adding to their year-to-date declines of more than 24%.

According to Rabobank’s second-quarter coffee outlook report, global coffee demand is projected to drop by 0.8% to 164.1 million 60kg bags this year due to the coronavirus pandemic’s effects on coffee consumption. The steep decline stems mostly from a significant decrease in out-of-home coffee drinking. The agribusiness bank also slashed its estimates on coffee demand in several countries because of social distancing guidelines, lockdowns, and the rise in unemployment.

Rabobank Australia commodity analyst Charles Clack said in the report:

Since the COVID-19 lockdowns, the fact that people are staying at home, working from home, staying away from the office and not traveling for business or pleasure – we’ve seen that real fall in the out-of-home consumption side.

Production, Rabobank notes, is anticipated to remain relatively the same. It noted to Brazil’s spike in COVID-19 cases and potential delays at farms and ports, but it believes the necessary preparations have been made and that “there is no labor shortage for the time being.”

The US Department of Agriculture (USDA) also recently weighed in on world coffee production. It forecast that global coffee output will climb to a six-year high of 176.1 million bags in 2020-2021, a boost of 9.1 million bags from the previous year. The USDA expects global ending stocks will soar to a six-year high as production outpaces consumption.

Researchers say that Brazil is the primary driver of the significant increase in output. The USDA sees its Arabica bean harvest to surged 6.8 million bags above the previous season to 47.8 million bags. But will the top coffee exporter flood the market with beans?

Bloomberg is reporting that growers are planning to store as many as 13 million bags, or 19%, of the expected harvest. Farmers are taking advantage of a weaker real currency and funds available through state lending programs. If the hoarding intensifies over the next several months, it could support prices.

The International Coffee Organization (ICO) recently stated in a webinar that the pandemic has served “as an additional shock to what we’ve called the ‘coffee crisis.’” Since 2016, the coffee market has witnessed a 30% lower than the average of the last decade.

In other agricultural commodities, August corn futures edged up $0.005, or 0.15%, to $3.225 per pound. August wheat futures fell $0.0425, or 0.87%, to $4.8675 a bushel. August soybean futures slipped $0.045, or 0.51%, to $8.695 per bushel.

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