The rally in robusta futures has further to run, Rabobank said, sounding a bullish note on premiums for high quality arabica beans too, as it ditched ideas of a world coffee production surplus next season.
The bank, which in November forecast world coffee output exceeding consumption by 3.7m bags in 2016-17, said it now expected a production deficit of 700,000 bags.
The revision reflected cuts to output forecasts for both production of arabica and robusta coffee, in part down to factoring in downgrades to Brazilian crop expectations made last month after an extensive crop tour.
However, while saying it was now a little less downbeat over Brazilian arabica output prospects – nudging its estimate for the forthcoming harvest higher by 800,000 bags from last month’s forecast to 40.0m bags – it cautioned that the shadow cast by drought over robusta yields could last even into 2017-18.
‘Particularly supportive fundamentals’
“After a wet January, rainfall was scarce in Brazil’s robusta areas in February and March, reducing any expectation of a recovery and limiting the potential for the following (2017) robusta crop,” Rabobank analyst Carlos Mera said.
“The low Brazil robusta crop, together with a lower Indonesian crop, should create a tight market in the next nine months.”
This would be evident in a further appreciation in London futures, which for the best-traded July contract are up by more than 11% from a late-February low, even after a drop of more than 2% on Wednesday.
“Robusta prices are likely to keep climbing a little higher in the next months,” Mr Mera said.
“Fundamentals are particularly supportive of robusta prices,” which could attract “further support” if drought in coffee-growing areas of Vietnam, the top producer of the variety, is not alleviated in the next two-to-five weeks.
Rabobank said its forecast of a 28.6m-bag Vietnamese harvest assumed that “rains will soon return”.
The bank was upbeat over premiums for specialty arabica supplies too, flagging the growth in US demand for gourmet beans in the US, where they appear to have led year-on-year growth of 13.2% in overall coffee disappearance in the October-to-December period.
The consumption pattern “points to a long-term demand growth for specialty coffee”, Mr Mera said, adding that this appetite was “not answered from the production side”, with values for high quality beans too low to boost output.
“The high differential of fine arabica coffee is here to stay and it will become the new normal for the foreseeable future.”
(Source – http://www.agrimoney.com/news/robusta-coffee-futures-to-extend-recovery-says-rabobank–9490.html)