Market data on Coffee pricing - end of 2011 Trends - 22/12/2011

One of our BSA Member's Masteroast has been closely following the trends of the coffee market since the raft of information on supply and pricing in July and here are a few snippets from late October, November and December 2011.

The weather: La Niña rolls in for a second round
The commodities markets this year felt the punch of the La Niña weather phenomenon, the strongest in the past 60 years.

Prices of commodities surged worldwide – from coffee in South America, corn in the US, to coal in Australia – as the extreme weather events of “the little girl” affected producers round the world.

Values have stabilised but markets now face another La Niña, which has been developing since September.

Although this new La Niña is expected to be weaker, extreme weather will continue to be a factor affecting commodity prices.

Supply disruptions will be “more frequent due to changing climate patterns and the increasing number and magnitude of extreme weather events they will cause,” says John Drzik, chief executive of Oliver Wyman Group, the consultancy.

“Floods, droughts, hurricanes and many other types of extreme weather events are all projected to increase in the next decade,” he warns.

The two consecutive years of La Niña – which brings cooler temperatures in the Pacific Ocean, leading to higher rainfall in south-east Asia and northern and eastern Australia, and lack of rain in the south of the US – follows a year of El Niño, the opposite weather phenomenon.

So how can commodities investors mitigate the weather risks?

“Find trades that offset your risks,” says Matt Rogers, president of Commodity Weather Group, a consultancy.

Notions of climate change may attract the attention of some investors but are “too macro” as a basis for hedging strategies, notes Mr Rogers. “Climate change means that both floods and droughts are more common,” he says, adding: “[It] is a bit of a blunt instrument.”

The list of weather disruptions that have recently had an impact on commodities proves his point.

In Queensland, Australia, mining groups declared force majeur after extensive floods caused by high rainfall in late 2010, exacerbated by the tropical cyclone Yasi. Nearly all the big mining groups were affected.

In Colombia, widespread flooding at the end of 2010 affected its premium Arabica coffee crop and droughts have affected crop yields in the US, Brazil and Argentina.

In southern Africa, floods led to crop damage, while Sri Lanka saw a jump in rubber and tea prices due to heavy rainfall.

Most recently, prices were hit by flooding in Thailand – the worst in half a century. It led to widespread losses in agriculture and industrial production.

The country is an important link in the supply chains of global manufacturers. The floods affected the production of car industry components and the impact has been felt in steel demand – and hence the iron ore used to make it, as car manufacturers have called for delays in their deliveries.

Rice production – the country accounts for nearly a third of global exports – was wiped out. The resulting shortage pushed up benchmark prices to a three-year high of $650 a tonne.

The return of India to the global rice market helped diminish worries, as New Delhi lifted its four-year-old export ban on sales of non-basmati rice, filling the gap left by Bangkok.

Not all the impact of extreme weather has been negative. Some areas have benefited from changed conditions, says Matt Huddleston, principal consultant to the financial services industry at the UK Met Office.

For example, cocoa has had a bumper year as La Niña has brought extra rain in west Africa. The good harvest, however, has meant lower prices, and the price of cocoa has fallen to a three-year low.

Although the latest La Niña is expected to be milder, it could still disrupt prices, as many companies and farmers have yet to recover from the damage of only a few months ago.

There are also worries about the lack of rain in the Black Sea region – the bumper wheat crop this year has held down the price of grains.

“It will be important to monitor the increasing dryness in the Black Sea region which has damaged the 2012/13 winter wheat crop,” say analysts at Rabobank, the Dutch lender.

This article originaly appeared in the FT on December 20th 2011

Further Reduction In Colombian 2011/12 Crop...Now 8.0 Million bags!
In an effort to keep you all updated with current news from major coffee producing countries and their forthcoming crops the BSA wants you to be aware of the developing situation in Colombia – the second largest supplier of Arabica coffee after Brazil, but importantly the largest specialty coffee producer in the world. Having already revised their initial forecasts downwards due to persistent bad weather in the region the National Federation of Coffee Growers of Colombia has announced a further fall in the expected crop.

As recently as 4^th November the anticipated crop was revised downwards from 9million sacks (60kg) to 8.5million. The news on Monday, 21^st November is a further downward forecast to 8million sacks.

Coffee Report from Priory Tea & Coffee - Monday, 7th November 2011
A tale of two markets & two reversals today with NYC reversing early session lower moves to move higher at the close whereas London opened higher and closed to the downside. Little in the way of fresh fundamentals to pick up on apart from the continuing poor (wet) weather in Colombia which has further created infrastructure problems in the main growing region of Manizales. Some exporters at the origin now firmly believe the origin may not produce much more than the 8.50 million bags produced at the origins production lows back in 2008. If accurate, this is likely to have far reaching ramifications for washed coffee availability & futures pricing.

Coffee prices to fall in 2012
Macquare Research says ist expects prices to remain firm during the intercrop period, but fall in the second half of 2012 after what are expected to be bumper crops from Vietnam and Brazil help the market out of its prolonged deficit.
For the time being the global coffee market in deficit, to the tune of 2.9million bags - albeit mostly in Arabica.
Read the rest of the report by clicking here.....

June & July 2011
Therefore for those of you who love your information in a graphical format please click here to review a report from the Speciality Coffee Association of Europe who promoted the scenario of coffee prices at $4 per lb!

Following on from this there is report from the ICO covering June's coffee forecasts and then VolCafe have added some interesting facts in their early August report.

Further to this there was a report that Colombia, the world’s second-largest supplier of arabica coffee beans, has trimmed its production forecast for the year by about 5.6 percent after July's crop slumped because of adverse weather.

The full article can be read by clicking here.

Information added: Wednesday, 20th December 2011