The market is moving, the context is uncertain, we explain it all in a few words...
Sébastien Lafaye, our Purchasing Director, gives us precise information on the current context of the coffee market. We decipher these trends for you.
LOCAL NEWS, ORIGIN BY ORIGIN
The harvest has begun in Peru. Some sources estimate a drop in production of around -15% depending on the region. Due to a disappointing production cycle (on fully washed coffees from Central America and Colombia and on Brazil), demand is shifting to Peru and pushing up local prices.
El Balcon, La Palma Central terroir, Peru
Diego Zamora, our director of the Belco agency in Armenia gives us his vision on the economic situation in Colombia in 3 key points.
1> As mentioned in our July market note, production costs continue to rise due to heavy rains and lack of labour.
2> The strong appreciation of the dollar in the face of the inflationary crisis in the US is weakening the Colombian peso and making imported products such as inputs less accessible. This contributes to the increase in production costs.
3> Colombian companies are awaiting the first decisions of the new president Gustavo Petro (the country's first left-wing head of state who took office on 7 August).
Diego Zamora, director of Belco Colombia angency, in a field visit in Finca La Pradera
Expensive and chaotic freight
Ocean freight has probably never been as expensive and chaotic as in recent months. We've heard it every day since Covid became a part of our daily lives: global supply chains are in complete disarray. As international logistics have come to a standstill, there is a catch-up effect from all industries to replenish depleted stocks. It's a container race! Add to this the 0 Covid policy in China* and its successive (and still recent) waves of confinement causing long queues in the ports and slowing down the rotation of container ships. The rise in oil prices has obviously not helped this inflationary situation. The icing on the cake is that the shipping companies are taking advantage of this general tension to "raise the stakes" and offer priority solutions that are obviously increasingly expensive.
It is difficult to know when this will end and whether the situation will return to what it was before covid. Delays are commonplace, impossible to avoid and numerous from some ports. Will this situation give rise to many alternative transport projects such as sailing?
*According to Dynaliners, China accounts for 23.5% of the world container flow.
Robusta is gaining ground
Robusta production in the world continues to grow. From 36% of global coffee production in 2004, it now accounts for 45%, reaching a total of just under 80 million bags. The main new outlets for Robusta are the emerging markets (Asia and Brazil).
"Our agro and quality teams are looking at the issue of specialty robusta and exploring all possibilities."
Reverse market structure
The structure of the C-market in a market without production stress shows different increasing market maturities (market in contango). The difference in price between two maturities allows the importer to pay for the carrying costs of the coffee (storage, insurance & financing). In the current situation with a production and therefore supply deficit, the C-market structure reflects this tension with an inverted curve (market in backwardation). This implies that the C-market no longer pays the costs of the stock holder, this is called an inverted market structure. This has not happened for years.
In concrete terms, this makes the price of delayed delivery coffees less competitive.
A little optimism, the world production of the 22/23 campaign which is currently opening with the Brazilian harvest presages a much better balance between supply and demand. Stress should ease and the C-market structure should relax.
See you soon for a new note and happy holidays!