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Tug of War Coffee Supply Demand
Posted by M
on October 27, 2020, 11:29 am
In my wildest bull dreams I did not expect to see crop conditions as poor in Brazil as we are experiencing. Rains get forecast and then donít materialize. Iíve never seen rains go totally missing for such a long period. If only this was a normal year! Coffee bulls must be cursed, whenever it seems like a go, something comes up that ruins the party. This go around itís coffee demand.Coffee demand has been growing steadily 1.5 to 2.5 % yearly pre Covid. Demand this year ex Covid would have been 171 mln bags and next year 174 mln bags.Covid has not only arrested this growth but has traders assessing a possible reduction in demand. Remember that this coffee crop will come to market next summer and be marketed September 21 to September 22. There is plenty of coffee in the interim. So while the market is normally forward looking there is enough uncertainty that traders are sidelining themselves as we can see from the reduction in volatility. Pre Covid we had world demand of 168 mln bags. What will the demand be in the 21/22 season my guess is that we will have a strong bounce back as demand comes back and the pipeline is replenished. There will definitely be a supply issue but the market sentiment is such that it doesnít want to deal with it right now.The threat of continued lockdowns around the world is also not helping.Normally a supply bull market is very abrupt. We donít usually have demand bull markets in coffee which are a slower and steadier advance. My guess is that we will have closer to a demand bull market as participants see the pieces come together over time.
- Tug of War Coffee Supply Demand - M October 27, 2020, 11:29 am
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