Coffee Price is Predicted to Soar Due to El Nino Effects

On Tuesday's (22/3/2016) trading at 17:54 WIB, coffee prices for May 2016 contracts rose 1.3 points or 0.99% to US$132.85 per pound.
Global coffee demand will exceed supply by 4 million bags in the season starting October 1. In the previous period, the deficit reached 4.8 million bags. The estimated capacity of 1 bag is 132 pounds or 60 kilograms.
Tristao Trading Co. futures company in Brazil believes that coffee stocks in Negeri Samba on June 30 will reach their lowest level in 15 years.
Managing Director of Coex Coffee Group based in Miami, Ernesto Alvarez, said that global supply is very fragile, potentially boosting prices. This statement also concludes the results of the National Coffee Association conference in San Diego, which took place from March 15-17, 2016.
Concerns about reduced supply have caused coffee prices to rally in recent weeks. On the other hand, the US dollar has strengthened against the Brazilian real and the Colombian peso, which has spurred increased exports.
`Shrinking supply is inversely proportional to the demand level, which will continue to rise,` he said, as quoted by Bloomberg, Tuesday (22/3/2016).
Meanwhile, a lack of rainfall could reduce coffee yields in Brazil, Vietnam, Colombia, and Indonesia. Moreover, ICE Futures US warehouse stocks in New York have shown a decline over the past 10 quarters.
Vice President of Ecom Agroindustrial Group Eduardo Esteve revealed that Mexico is threatened with producing harvests at their lowest level in 53 years due to a fungal disease. The country sells most of its exports to the United States.
In his presentation at the conference, he said that the balance between supply and demand will occur in the 2016-2017 season. Meanwhile, robusta coffee production in Brazil is already alarming.
Head of the Colombian National Coffee Farmers Federation Roberto Velez said at the conference in San Diego that overall agricultural sector revenue in his country would decrease by US$200 million year-on-year (y-o-y). Meanwhile, coffee production in 2016 will decrease by 700,000 bags to 1.2 million bags.
The World Bank's Commodity Market Outlook states that global coffee production in the 2015-2016 season amounted to 150,122 bags, while consumption was at 148,267 bags.
During that period, Brazil was the largest producer, with a contribution of 49,400 bags. Indonesia ranked fourth in the world, with production totaling 10,605 bags.
In terms of demand, the European Union is the largest consumer, with an absorption of 43,850 bags. In second place, the United States took 24,067 bags and Brazil ranked third with 20,330 bags.
Arabica coffee prices are projected to reach US$3.40 per kg in 2016, continuing to increase slightly until 2020 to US$3.44 per kg. This year, robusta coffee is predicted to reach a level of US$1.80 per kg and US$1.84 per kg in 2020.

Editor: Hendri Tri Widi Asworo

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