Coffee
The coffee forward curve has significantly moved since the last bulletin. Indeed the price of the near term contract (DEC-20) has jumped from 102 to 119.65 cents/pound. This jump also affects the following contract, with an increase for JUL-22, from 118 to 131. This increase is believed to be due to diminished exports confirmed by the latest release of ICO report as well as increased demand from recovering economy. (ICO, 2020)
Besides, it is noticeable that the forward-curve has flattened a bit. Thus, indicating growth in immediate demand as the premium for late delivery decreases.
Cocoa
With regards to Cocoa forward curve, its shape has widely changed. It is now in a clear contango. The seasonality is probably in play here, paying a premium for immediate delivery of the recent 2020/2021 season harvest in November 2020.
Also, the overall price has increased. It can be related to the increase of farm-gate prices, decreed by Ghana and Côte d’Ivoire, as well as international recovery, knowing that exports are within predictions. (ICCO, 2020)
VSS-compliant Coffee and Cocoa
The International Trade Center recently published a report (2020) about sustainable commodities. This document highlights the increase in these last couple of years (2014-2018) of sustainably certified crop fields for several commodities including cocoa. According to the report, the demand for VSS-compliant cocoa (Voluntary sustainability standard) is rising especially in North America and Western Europe. This demand mainly comes from the desire of consumers to buy more ethical chocolate. The experts expect this trend to continue (+9.5% CAGR) until 2025 and to reach USD 620M in retail value by 2025.
Moreover, the ITC report states about Asia, to become in a not so far future “the world’s second-largest consumer market of cocoa-based ingredients” right behind Western Europe. This is bringing concerns about the capability of cocoa producers to meet the demand. Indeed, climate change and the low-yield of farmers are threatening the production of the commodity.
However, coffee is an exception to that. This commodity has seen a decrease in the estimation of the minimum area VSS certified between 2014-2018. The compliant areas decreased by 12.2% in the same given time (20.7% of global production area). This can be partially explained by the oversupply of VSS-compliant products. Research suggests the consumers in emerging economies are more price-sensitive than expected. So, the premium price of VSS-compliant coffee reduces product attractiveness. Nevertheless, data shows the demand for sustainable coffee is still growing (ITC, 2020).
Recommendation
Coffee
The latest results published by ICO are pushing the prices higher. The lower exports combined with the overall economic situation are impacting the short term. It is still expected that next season would hit record numbers. Therefore, we still remind cautious with coffee, as the price might soon come back to the lower tier.
Cocoa
The supply chain is impacted by the increase in farm-gate price. This premium will be mostly absorbed by intermediaries along the way. It still increases the price as production remains stable. The next report from ICCO concerning the harvest of November 2020 will provide more guidance with regards to the supply side. Therefore, we continue our forecast for a stable price of 2300-2500 USD/Ton.
Disclaimer
This publication is for your information only and is not intended as an offer, or a solicitation of an offer, to buy or sell any investment or other specific product. The analysis contained herein does not constitute a personal recommendation or take into account the particular investment objectives, investment strategies, financial situation and needs of any specific recipient. It is based on numerous assumptions
Reference
“CJ: NMX Historical Data”. NASDAQ, 2020, https://www.nasdaq.com/market-activity/commodities/cj%3Anmx/historical. Accessed 16 Nov 2020.
“KT: NMX Historical Data”. NASDAQ, 2020, https://www.nasdaq.com/market-activity/commodities/kt%3Anmx. Accessed 16 Nov 2020.
Futures, Cocoa. “ICE Futures And Options”. Theice.Com, 2020, https://www.theice.com/products/7/Cocoa-Futures/data?marketId=5932293.
Futures, Coffee. “ICE Futures And Options”. Theice.Com, 2020, https://www.theice.com/products/15/Coffee-C-Futures/data?marketId=5673521.
Ico.Org, 2020, http://www.ico.org/documents/cy2020-21/cmr-1020-e.pdf.
Ico.Org, 2020, http://www.ico.org/
Icco.Org, 2020 https://www.icco.org/
The International Trade Centre. The State Of Sustainable Markets 2020. The International Trade Centre, Geneva, 2020, https://www.intracen.org/uploadedFiles/intracenorg/Content/Publications/SustainableMarkets2020-layout_20201012_web.pdf. Accessed 18 Nov 2020.