Olam sees limited downside for arabica coffee futures prices
Singapore commodity firm Olam International sees limited further downside to ICE arabica coffee futures prices, with global supply and demand expected to be balanced until mid-2013, its managing director of coffee said yesterday.
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Reuters
23 March 2012
Singapore commodity firm Olam International sees limited further downside to ICE arabica coffee futures prices, with global supply and demand expected to be balanced until mid-2013, its managing director of coffee said yesterday.
‘We believe that the current move down is a bit overdone,’ Vivek Verma told Reuters.
‘For the next year or so supply and demand are pretty balanced and the real determinant will be the 2013 Brazil crop.’ Arabica coffee futures traded on ICE have fallen by almost 13 per cent over the past month, in the lead up to top producer Brazil’s on-year harvest.
Brazil’s coffee production rises and falls from one year to the next in a biennial cycle.
‘A lot will depend on Brazil’s crop in 2013. If it’s significantly higher than the last two off-year crops then we will see the arabica market moving to a slight surplus situation.
‘If it continues to be like the last two off-year crops then we are heading back into the kind of deficits we have seen over the past two years,’ said Mr. Verma.
Olam estimated that Brazil produced 45.5 million 60kg bags in its 2011 off-year crop, of which 31.5 million bags were arabicas.
New York-based arabica future’s premium to robustas - which are often used in instant coffee blends - has narrowed significantly in recent weeks, but Mr. Verma said he expected it to widen again.
‘I would expect the difference between the arabica and robusta markets to widen because we expect downside in New York has already happened but London may have a little bit of downside to go.’
Olam expects a small surplus of robusta coffee in 2011/12 after a large crop from the world’s top producer Vietnam.
‘We believe the (robusta) market is stable to slightly bearish, but roasters are not as well covered’, which could help support prices, said Mr. Verma.
‘There is a surplus, but on the other side roasters are not as well covered in robustas as they are in arabicas.’ Mr. Verma noted robusta market fundamentals did not justify the premium on NYSE Liffe’s London-based May futures contract over July, as the market is well supplied after the large crop from Vietnam.
‘The structure in London is more to do with specific players in the market and not fundamentals,’ Mr. Verma said.
According to exchange data, Liffe’s March contract had 152,480 tonnes of certified robusta stocks delivered against it as of March 22, over three quarters of the total available certified stocks, after traders said one market participant had built up a large long position in the futures market.
In 2011/12 Olam expects to source around 8-9 million 60kg bags or around 7 per cent of annual world coffee production, split roughly equally between the arabica and robusta varieties.
Mr. Verma said volumes had been increasing by around 20-25 per cent each year and he expected this growth rate to be maintained over the coming few years.