Rabobank Agri Commodity Markets Research Market Outlook- Era of Oversupply? Sintercafe November 9, 20 Keith Flury Senior Commodity Analyst - Agri Commodity Markets Research (ACMR) Food & Agribusiness Research and Advisory Rabobank International - London
Coffee market prices and spread Source: Bloomberg, Rabobank 2
Total coffee stocks have increased for four seasons and the / rally may continue to impact future supply 60 60% 55 Million 60kg bags 50 45 40 35 50% 40% 30% Percentage 30 25 20% 20 % Ending Stocks Stocks/Usage Source: ICO, Rabobank 3
Supply and Demand; third consecutive surplus is forecast in /13 150 145 140 135 Million Bags 130 5 0 5 1 5 0 Global Coffee Demand Total Production Source: ICO, Rabobank 4
Growing Robusta demand has been met with increased production but fundamentals are tight 65 60 55 Million Bags 50 45 40 35 30 Robusta Production Robusta Demand Source: ICO, Rabobank 5
A reduced Arabica off season deficit in / was a function of a large non-brazilian crop and demand shift to Robusta 90 85 80 Million Bags 75 70 65 60 55 50 Arabica Production (RHS) Arabica demand (RHS) Source: ICO, Rabobank 6
Arabica surplus in /13 follows a small deficit in / while Robusta is forecast to return to deficit in /13 15 Million Bags 5 0-5 - -15 Arabica Surplus/Deficit Robusta Surplus/Deficit Source: Rabobank 7
Robusta market share has increased due to growing consumption in emerging markets and roaster demand shift 65% Share of Total Demand 55% 45% 35% 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/ / / (f) /13 (f) Arabica Share Robusta Share Source: Rabobank 8
Arabica/Robusta arbitrage still high relative to longer term averages 190 140 77.58 Since 2007 61.24 Since 2002 58.01 since 2000 51.75 Since 1991 USc/lb 90 40 - Source: Rabobank, Bloomberg 9
Stock levels of Arabica have grown in 20 while Robusta inventories have fallen significantly supporting that market 7,000 450 Million Bags 6,000 5,000 4,000 3,000 2,000 1,000 400 350 300 250 200 150 0 50 Thousand Tonnes 0 Jan 05 May 05 Sep 05 Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan 06 06 06 07 07 07 08 08 08 09 09 09 ICE Arabica Inventories US Green Coffee Stocks Liffe Robusta Stocks May Sep 0 Source: Bloomberg, Rabobank
Rabobank Agri Commodity Markets Research Oversupply? Arabica- Yes, Speculators and Users positioned for this, Brazilians hold back sales (pressure on washed producers). After next season s possible deficit oversupply risks increase. Robusta-No, but depends on just how large those Vietnamese crops are. Next season outlook the same Source: Bloomberg, Rabobank
Coffee differentials have shifted closer together after the rally in Washed Arabicas resulted in demand migration 0 300 80 250 USc/lb 60 40 20 200 150 USc/lb 0 0-20 Jan 09 Mar 09 May 09 Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul 09 09 09 NY-Colombian NY-Brazilians NY-Other Milds NY Front Month (RHS) Sep 50 Source: ICO, Rabobank
The non Brazilian Arabica supply increase partly a function of the grower response to the 20/ price rally 350 47 300 46 45 USd/lb 250 200 150 44 43 42 Million Bags 0 41 40 50 39 0 Mar 00 Oct 00 May 01 Dec 01 Jul 02 Feb 03 Sep 03 Apr 04 Nov 04 Jun 05 Jan 06 Aug 06 Mar 07 Oct 07 May 08 Dec 08 Jul 09 Feb Sep Apr Nov Jun 38 # Front Month Non Brazilian Arabica Production (RHS) Source: Rabobank 13
C prices in origin currencies normalized to the beginning of the / rally 220 200 Indexed 05/20 180 160 140 0 0 80 Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep KC in BRL KC in COP KC in Usd Robusta Source: Bloomberg, Rabobank 14
Brazilian Arabica exports fall due to lower prices and good incentives to store; 1.1 million bags difference in Apr-Sep 2.8 2.6 2.4 Million Bags 2.2 2.0 1.8 1.6 1.4 1.2 1.0 20/ 6 Year Average Source: Cecafe, Rabobank 15
Rabobank Agri Commodity Markets Research Outlook Outlook Currencies moving against many origins Grower incentives reduced Differentials shifting closer Cost of production increases, lower differentials and falling NY means profitability squeezed Source: Conab, Rabobank 16
The speculator gross short position has been a key driver for NY Arabica prices in the past months 50 40 Thousand Contracts 30 20 0 - -20 Jun 08 Aug 08 Oct 08 Dec 08 Feb 09 Apr 09 Jun 09 Aug 09 Oct 09 Dec 09 Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Dec Feb Apr Jun Aug Oct Managed Money Net Position Managed Money Long Managed Money Shorts Source: Bloomberg, CFTC, Rabobank 17
The speculator shorting as a share of open interest has increased in 20 and is expected to remain elevated 30 25 20 15 5 0 % of OI - Non-Commercials Short ( week moving average) Source: CFTC, Rabobank 18
Price change & production response in Brazil 250 200 Indexed 1981 = 0 150 0 50 0 Yield Production Area Brazilian Naturals Prices Source: IBGE, Rabobank 19
Coffee forecasts 280 Rabobank Quarterly Coffee Forecast unit Q2' Q3' Q4'(f) Q1'13(f) Q2'13(f) Q3'13(f) ICE US /lb 170 172 160 165 175 175 Liffe US$/t 2066 2095 2000 2050 2075 20 USd / pound 260 240 220 200 180 160 140 0 0 ICE NY coffee Previous Forecast Rabobank Forecast Source: Bloomberg, ICE, Rabobank 20
Coffee Balance Sheet World Coffee Supply & Demand Rabobank Rabobank (00 60kg bags) 04/05 05/06 06/07 07/08 08/09 09/ / / (f) /13 (f) Beginning Stocks 39,809 42,348 31,363 37,148 29,882 36,052 31,900 37,474 37,905 Arabica Production 77,663 69,455 81,717 72,734 82,390 73,895 85,528 79,603 85,340 Robusta Production 43,141 45,692 50,367 48,333 54,242 53,427 56,096 61,428 62,996 Total Output 0,804 5,147 132,084 1,067 136,632 7,322 141,624 141,031 148,336 MY Imports 93,0 92,195 97,470 96,809 96,821 93,800 7,520 5,000 8,000 Total Supply 253,624 249,690 260,917 255,024 263,335 257,174 281,044 283,505 294,241 MY Exports 93,195 92,829 98,000 96,551 97,303 93,000 7,550 5,000 8,000 Soluble Use 14,370,963,857 13,584,376 13,144 13,400 13,900 14,400 Use 5,779 1,535 1,9 5,007 7,604 9,130 2,620 6,700 130,000 Total Domestic Consumptio 8,081 5,498 5,769 8,591 9,980 132,274 136,020 140,600 144,400 Total Usage 2,276 218,327 223,769 225,142 227,283 225,274 243,570 245,600 252,400 Surplus Deficit 2,723 -,351 6,315-7,524 6,652-4,952 5,604 431 3,937 Ending Stocks 42,348 31,363 37,148 29,882 36,052 31,900 37,474 37,905 41,842 Stocks/Usage 36% 25% 30% 23% 28% 24% 28% 27% 29% Source: ICO, Rabobank 21
Thank you Keith Flury Senior Commodity Analyst Agri Commodity Markets Research - Food & Agribusiness Research and Advisory Rabobank Interna?onal - Ph: +44(0)2076649676 - Mob: +44(0)7584708569 Email: Keith.Flury@rabobank.com 22
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Last year s (November 20) quarterly average Arabica price forecast compared with reality 280 260 240 220 US$/ton 200 180 160 140 0 Actual RABO forecast Source: Bloomberg, Rabobank 25