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Keeping an eye on world coffee stocks

From the March 2015 issue.

Global coffee markets are bracing for one of the most volatile periods for prices in years. Brazil has no inventories left and climate change and crop pests could contribute to low global output. Meanwhile, global consumption continues to grow.

When it comes to the global coffee market, it’s really all about Brazil.

Even as the world of coffee has seen prices influenced by anything from oil prices to the economic growth in China, in the end it all boils down to the output of the world’s largest coffee producer.

If Brazil has coffee, the world of coffee is safe, and it doesn’t even matter whether that coffee is from new production or existing supply. But as 2015 gets underway, it’s becoming increasingly obvious that dwindling Brazil stocks could become a major issue for the industry.

Adding to the woes of the market, Brazil’s 2015-16 crop does not look good. Even if projections for the 2015-16 harvest turn out to be a tad better than the most pessimistic projections – and the market won’t know for sure until mid-May when the first lots of the crop in Brazil start reaching mills for processing – at the most optimistic count Brazil is going to run short of at least 4 or 5 million 60-kilogram bags.

“The market is not bullish enough because Brazil has zero stocks left. People tend to forget that Brazil must have working stocks and they are in deficit when stocks go below 8.4 million bags, and in previous years when stocks went below 8.4 million bags this has put the market at US$3.09 per pound,” says veteran Commodity Analyst Judith Ganes-Chase, who runs J. Ganes Consulting in the United States.

This scenario could occur as early as the end of March, when Brazil’s government officially closes the coffee harvest year. The stock end-balance is based on what is left in inventories from the last 2014-15 harvest, calculated against the demand of the local market until the new crop starts to arrive by the end of June.

Ganes-Chase is not the only analyst who has started to raise the alarm. From London to Singapore, traders and roasters are increasingly concerned about what the actual impact on the market and prices will be once the reality of what might be the lowest stocks in history starts to sink in.

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