Coffee Outlook Q2 2017: Growth ahead

Transcription

1 Marketing Communication May 2017 Coffee Outlook Q2 2017: Growth ahead Agri Commodity Markets Research RaboResearch Food & Agribusiness far.rabobank.com Carlos Mera Senior Commodity Analyst +44 (0) James Watson Senior Beverage Analyst +1 (212) Summary Impressive depreciation of the Brazilian real compounded fund selling, bringing coffee prices down by approximately 10% in the latest month. Green coffee net imports have been extremely high, pushing current and future demand estimates, and resulting in a large expected deficit of 6.8m bags in the 2017/18 crop year. We continue to expect significant value growth and higher premiumisation worldwide. Volumes of roasted coffee traded internationally are up. ICE Arabica lost 11% MOM. Robusta lost 9% MOM. In the short term, we can see some further downside but demand has been very strong. The bearish pressure came from several fronts. First, funds have been keen sellers. Secondly, visible stocks kept building, including a surprising jump of 0.7m bags in US port stocks between December and April, to 6.9m bags. On the robusta side, we have also seen record stocks in HCMC earlier this year and no destocking of London certified stocks (as expected in the market), which halted the robusta rally seen through The third reason for weaker arabica prices is the unexpected depreciation of the Brazilian real, now trading at 3.3 vs the US dollar, on the back of the political developments in Brazil. Whereas funds don t normally hold net short positions for long, and visible stocks at destination are expected to come back down (Brazil exports in April were 24% down MOM and 13.5% YOY), the Brazilian real remains a potentially dominant bearish factor. With commercial coverage close to record levels, a weakening Brazilian real can lead to lower prices until there are clear signs of declining global stocks. However, we see consumption growing very strongly, and a clear off-cycle in the current Brazilian arabica harvest. With the prospects of a declining stocks-to-use ratio in the next 13 months, we believe chances are for an exacerbated weather market during the Brazilian winter, but especially during the flowering period of the potentially large 2018 Brazil crop. Production Colombia-registered production in the first half of the crop year came in 9% higher than last year. However, April-registered production saw a large, 20%, drop. Opinions are divided on whether this is the start of a much lower midcrop or simply a delay. For the time being, we stick with our estimate of 14.6m bags for the current season, which includes an increase in May-September production of just 3% vs last year. We maintain Peru at 4.3m bags for the 2016/17 crop year as the latest export numbers support this estimate, and believe that a further increase is possible in 2017/18, as the country keeps recovering from the coffee rust and new plantations increase potential. Given a huge amount of exports from Indonesia, we are forced to make a 1.5m bag upward adjustment in the 2016/17 crop, to 12.4m bags. There are very different expectations on the 2017/18 crop, but for the time being we maintain 11.6m bags. We maintain our rather good Vietnam 2016/17 crop number at 26.3m bags, which is only a moderate 7% drop YOY. The sustained surge in stocks in HCMC would not have been possible if the crop had been down by a much larger percentage. The Vietnam 2017/18 crop could still be a 1/7 RaboResearch Coffee Outlook Q2 2017: Growth ahead May 2017

2 record one. For the time being, rainfall has been much higher than normal and we have not heard about any flowering/pinhead abortion, so we consider it beneficial. Global exports from origin in the first half of the global coffee year came in 2.4m bags higher YOY, mainly because of a surge of mild exports, especially from Colombia, Honduras and Peru. Exports from Honduras continued to be well-above last year, with October-March exports running 32% higher. This export pace has been partially offset by a decline in Guatemalan exports, which have been 14% lower YOY in the period. Rainfall has been very good over Central America but low prices are likely to affect production to some extent. Green coffee demand Disappearance continues to be surprisingly high. In the EU28, Q net imports came in 0.9% down from Q1 2016, but 4-quarter net imports are running 4.7% higher YOY, and 3.6% higher than two years ago. In the US, Q net imports were at record levels. Even after adjusting for positive stock changes, we see an impressive 10.1% increase over Q1 2016, and a 6.3% increase on a 4-quarter basis. Q disappearance in Japan came in 1.9% higher YOY and 4.6% higher on a 4-quarter rolling basis. Most impressively, disappearance in the other 12 countries for which we have Q trade data came in 9.4% higher YOY, or +0.29m bags. Net imports into Hong Kong increased by four YOY, to 1.2m bags, coming mainly from mainland China. It is highly unlikely that Hong Kong could suddenly reach a per-capita consumption not usually seen outside Scandinavia, so we assume it is simply misclassification of coffee mixes. Is this surge in net imports actual demand growth or just an increase in pipeline? Time will tell, but there are different theories around. With the forward curves in contango and low interest rates, sitting on coffee goes relatively unpunished. However, the 15 countries/regions with available data mentioned above show a 4.9m-bag increase in the latest 12-month period (or 5.6% growth), which means either a very large pipeline or a structural change in coffee consumption in non-producing countries. Just for comparison, the annual increases in the preceding three years were: 1.1, 1.3 and 2.1m bags. Most likely, the surge in net imports in non-producing countries reflects both an expanding pipeline and increased growth. Figure 1: Four-quarter rolling disappearance in the EU and US Figure 2: Disappearance in other non-producing countries million 60kg bags million 60kg bags million 60kg bags Axis Title EU28 US (RHS) Other 12 Non-Producing countries Japan (RHS) Source: Official customs data, GCA, Rabobank 2017 Source: Official customs data, Rabobank 2017 S/D balance Both production and demand are adjusted upwards for the 2016/17 crop year, still resulting in a small deficit. However, although our increases in production are not expected to have multi-year effects (especially on the arabica side at the current prices), the increases in current demand have 2/7 RaboResearch Coffee Outlook Q2 2017: Growth ahead May 2017

3 a knock-on effect in our expectations for 2017/18. This is the main reason why we are looking at an increased deficit of 6.8m bags in 2017/18 (up from 5.3m bags in our previous quarterly). At the moment, very large visible stocks create stability in the market. And it is possible that Brazil could produce enough in 2018/19 to balance the market. But declining global stocks before the 2018/19 crops materialise will mean that any weather effect will have an exacerbated price impact. Figure 3: Coffee global S/D balance million bags (60kg each) /13 13/14 14/15 15/16 16/17f 17/18f Arabica S/D Robusta S/D Stocks/use (RHS) 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Source: Rabobank, 2017 Table 1: S/D balance (crop year) 12/13 13/14 14/15 15/16 16/17 17/18 Production Brazil Vietnam Indonesia Colombia Other Demand Non-producing countries (Oct-Sep) Producing countries (crop year) S/D balance of which Arabica of which Robusta Share of Robusta in non-producing countries 35.9% 36.3% 35.5% 35.6% 35.1% 34.0% Note: Figures in million bags (60kg each) Source: Rabobank /7 RaboResearch Coffee Outlook Q2 2017: Growth ahead May 2017

4 Roasted coffee From a consumer perspective, we expect significant hot coffee market value growth over the next five years on a global basis. All of the top-10 markets should experience growth, whether in a developed or emerging market. However, the consumer trends driving this growth can look quite different from region to region (see Figure 3). Figure 4: Hot coffee value growth in top-10 markets 18,000 12% 16,000 14,000 2, % 9.6% 10% million USD 12,000 10,000 8,000 13,336 3, % 6.9% 5.2% 6.5% 8% 6% 5-year CAGR 6,000 4,000 2, % 5, % 1,194 1,072 5, % 1.6% 2,792 2,698 4,535 3, ,127 2,004 1,969 1,941 USA Brazil Germany Japan France Indonesia Russia Italy United Kingdom Canada 4% 2% 0% 2016 USD value USD growth CAGR Source: Euromonitor, Rabobank 2017 In North America, we see growth led by a premiumisation trend as almost all of the value growth in the industry reflects pricing growth. Some growth is driven by consumers moving more to coffee pods, which have a higher unit price than traditional drip coffee. But pod growth is slowing and other factors are also contributing to premiumisation. Out-of-home coffee consumption is increasing. The percentage of coffee drinkers who consume coffee at home has declined for seven consecutive years, while out-of-home consumption has had a similar rise and we see much more run room. 34% of coffee drinkers consumed out of home in 2016, up from 24% in It s not just out-of-home consumption. The biggest trends in coffee drinking are all pushing up the price. The rise of third-wave roasters, focusing on high-end retail experience and single-origin coffees, are continuing to change the relationship between the consumer and coffee. According to the 2017 NCA survey, 28% of people surveyed bought single origin coffee in the past year. Pour-over coffee and cold brew are introducing new preparations that add significant value to the consumer. We expect much more premiumisation in the coffee industry over the next five years, as this trend can play out over decades. Across emerging markets, we see coffee growth more closely tied to GDP growth, urbanisation processes and the willingness of consumers in traditional tea markets to try coffee consumption. We expect Asia, Latin America, and the Middle East and Africa to account for roughly more than half of hot coffee value growth over the next five years. One of the keys to growth in these markets, as opposed to developed markets is the instant coffee segment. We expect instant coffee to drive 70% of growth in Asia, 50% of growth in the Middle East and Africa, and 25% of growth in Latin America. Looking a little bit deeper, it is necessary to point out the potential of instant mixes the 2, 3 or 4- in-1 blends of instant coffee and flavours/sweeteners. These account for half of the instant coffee growth in Middle East and Africa, and three quarters of the growth in Asia Pacific. For regions where consumers are moving to coffee for the first time, these products provide an effective entry point to the broader category, both in price and taste. 4/7 RaboResearch Coffee Outlook Q2 2017: Growth ahead May 2017

5 Increased coffee consumption, consolidation and premiumisation is reflected in increased volumes of roasted coffee traded internationally. We can track non-decaf roasted coffee exports from 38 countries (counting the EU28 as one) and we see a rate of growth of 2.1% in 2015, and of 13.9% in 2016, to 382,440 tonnes (or 7.6m bags of green bean equivalent). We have to single out continental China, where we saw roast coffee exports increasing from 4,778 tonnes in 2015, to 27,823 tonnes in 2016, especially to Hong Kong. Within the EU, the increasingly dominant position of Italy as a roasted coffee powerhouse is remarkable Italy is close to taking the crown away from Germany as the largest roasted coffee exporter in the world. Roasted coffee exports from Italy increased 6% in 2015 and 13% in 2016, to 0.19m tonnes, or 3.9m bags on a green-bean equivalent basis, with two-thirds of it going to other EU countries. In contrast, roasted coffee exports from Germany had an average rate of growth of only 1.5% in the period, to 0.21m tonnes. We expect the increased consolidation and premiumisation to continue to cause higher volumes of roasted coffee traded internationally. 5/7 RaboResearch Coffee Outlook Q2 2017: Growth ahead May 2017

6 Imprint RaboResearch Food & Agribusiness far.rabobank.com Agri Commodity Markets Research & Beverages Carlos Mera Senior Commodity Analyst +44 (0) James Watson Senior Beverage Analyst +1 (212) Rabobank Markets Corporate Risk & Treasury Management Contacts: Martijn Sorber Koon Koh Tan Terry Allom David Kane Arjan Veerhoek Neil Williamson Ricardo Rosa Global Head Asia Australia Europe Netherlands North America South America david.kane@rabobank.com +44 (20) arjan.veerhoek@rabobank.com neil.williamson@rabobank.com +1 (212) ricardo.rosa@rabobank.com /7 RaboResearch Coffee Outlook Q2 2017: Growth ahead May 2017

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