Commodities

World coffee market will move to deficit in 2021-22

G Chandrashekhar | Updated on February 04, 2021 Published on February 04, 2021

For world agricultural markets in general, 2021 may turn out a year of two halves with firm prices in the first half and softness in the second. But coffee could be an exception because of supply shortfall and demand revival operating together.

Global coffee market is tightening. Brazil — by far the world’s largest producer and exporter — is forecast to harvest a much lower crop for 2021-22 because of weather-related challenges, mainly excessively dry weather. It is obvious that La Nina is taking a toll on several South American crops including coffee.

Brazilian forecasting agency Conab estimates the country is likely to harvest less than 50 million bags of coffee in April 2021 as compared with 63 million bags in the previous year. Some estimates place the upcoming harvest as low as 44-45 million bags.

Arabica coffee, which usually faces a 2-year cycle of varying yields, will have a low-yield year with output forecast between 30 million and 33 million bags which would mean a decline of 35-40 per cent from the previous year, recording a decadal low.

On the other hand, Robusta production is likely to hold at around 14-16 million bags, matching the record achieved two years ago. Not just Brazil, excessive rain in Vietnam, another coffee producer, is also seen affecting global supplies.

Revival in demand

World coffee consumption has been growing at about two per cent year-on-year last five years; but took a hit in 2020 due to the pandemic and associated restrictions on travel. Now, subdued demand conditions are likely to give way to a demand bounce back as travel and hospitality sector restrictions are eased and consumption, especially out-of-home, improves. Vaccine availability is generating greater confidence about revival of economic activities and for consumers to venture out.

With bright prospects for demand revival and mainly lower Brazilian crop, the world coffee market will enter into deficit in 2021-22. There is likely to be a modest increase in coffee prices especially in the second half of the year. Arabica has the potential to rise 8-10 per cent to 135 US cents per pound from the current levels.

India to gain

For Indian coffee producers and exporters it is good news. India’s production is estimated to rise to 5.3 million bags, enabled by favourable weather as yields of Arabica and Robusta improve. Exports are projected at 3.5 million bags.

The author is a policy commentator and commodities market specialist. Views are personal

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Published on February 04, 2021
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