Coffee prices are trading sideways moderately below last month's 12-year high. Bearish factors include (1) ICO's estimate for Brazil's coffee output to rise to 50 mln bags in the year starting Oct 1, up +27% y/y, and (2) ICO's prediction that global coffee output may rise 12% to 135 mln bags next season. Bullish factors include (1) tight supplies as coffee inventories monitored by ICE have fallen -30% this year to an 8-year low, and (2) ICO's prediction that 2010 global coffee exports will drop below last year's 95.5 mln bags amid "scarcity."
Fundamental Outlook-Bull Market Correction-
Coffee prices are correcting from a recent 12-year high as the market adjusts to a possible bumper crop from Brazil. Coffee fundamentals remain bullish due to tight supplies combined with strong consumption and lagging production. Coffee production in 2009/10 fell -5.9% y/y to 120.6 mln bags (ICO), but production should rebound to 133-135 mln bags in 2010/11 (ICO). Brazil's 2010/11 (July-June) production will rise 23% y/y to 55.3 mln bags on their favorable 2-yr cycle (USDA).
Coffee Supply/Demand USDA:
2010-11 world coffee production a record 139.7 mln bags (+11% vs 2009-10's 125.7 mln bags); 2010-11 consumption 131.5 mln bags (+2.2% vs 2009/10's 128.7 mln bags); 2010-11 world ending stocks at 36.3 mln bags (+16% vs 2009-10's 31.3 mln bags); exports 103.4 mln bags (+5.2% vs 2009/10's 98.3 mln bags); 2010-11 stocks/use 27.6% (vs 2009-10's 24.3%).
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