In the 1st Bulletin, when looking on the graph of ICO (International Coffee Organization) composite indicator price of green coffee beans of all major origins and type, we can notice a decrease that started in 2nd of November (price of 116 cents/lb) continues to the 2nd Bulletin until 13th November (price of 108 cents/lb) and then stabilized from the 17th of November (109 USD cents/lb).
1st Bulletin
2nd Bulletin
Therefore there is a decrease in the price which can be explained by the following:
The Brazilian currency real had strengthened comparing to the USD which meant the traders demand decreased while the supply level stayed stable and this sent the prices down.
In addition, According to the ICE the number of coffee future contracts this year so far has declined from 287,732 to 247,618[1] which confirms us the demand had decreased. (Explained in the 2 graphs below)
However, for this second bulletin, there was a smaller variation in the price comparing to the first bulletin. we can assume that the presidential election in the leading coffee export country, Brazil, still has a lower impact on ICO composite price indicator comparing to the 1st bulletin. There was a slight decrease in the price of 8 cents overall which is about 9% (116-108/116). We assume that enough time has passed after the recent elections in the Brazil, the political situation in Brazil stabilized and this can explain the decrease in volatility of the price of coffee beans there is slight price decrease as previously mentioned.
Forward curve
As we can notice in the forwards curve for Arabica and Robusta presented below, the correlation between these two graphs continues to be similar compared to our first bulletin.
The coffee market continues to be a Carry market – the cash price today is lower than the futures prices in a stable trend which we assume it is due to lack of impactful news and events.
There was a slight decrease in the spot prices for Arabica beans that are represented by the first point in the forward curve .
There was a steeper decrease in the spot prices for Robusta beans that are represented by the first point in the forward curve .
Coffee Terminal Markets Explanation:
There are two major terminal markets for the coffee commodity which are the following:
- The most active terminal market is without doubt for the Arabica coffee as it is the most exported worldwide (around 70%) represented by the “US Coffee C” contract and traded on the ICE
- Robusta coffee contracts are traded on the “London-based London International Financial Futures and Options Exchange known as “LIFE” and which is owned by the ICE.
In order to be accepted in those terminals, there is a need for a testing grade as well as cup testing for the flavor and the ICE establishes a “standard” with using certain coffees.
Interesting trends in the Coffee Sector: Reviving Colombians Coffee Culture
Article: “In Colombia, kids learn barista skills with the goal of saving the country’s coffee culture”
The article speaks about the goal of Colombia, one of the leading export country of coffee, in motivating and getting children invested in the coffee industry and profession. In fact, there are some general issues that decrease the interest to enter the industry such as “farmers’ low coffee prices, climate change, and a rapidly aging coffee workforce” These threat the future of coffee sector in Columbia.
According to Colombian Coffee Growers Federation, there are only 10%[1] of Colombian coffee farmers currently looking at coffee as a business for the next generation. This means that the younger generation do not believe in coffee business as a way of life. This can be a huge problem in the next 15 to 20 years for the whole coffee supply as the country represents high market share and as the demand for coffee is constantly increasing (supply-demand unbalances). In addition, we can see the same issue in other producing countries such as Tanzania and Uganda, important coffee exporters, where the average age of coffee farmers is 5 to 6 years older than other farmers.
References:
https://www.theice.com/products/15/Coffee-C-Futures
https://www.theice.com/products/37089079/Robusta-Coffee-Futures
https://forexfocus.com/commodities/coffee-futures-trading-in-a-narrow-range/
https://seekingalpha.com/article/4221712-coffee-retreats-higher-low-will-build-base