Arabica coffee prices will rise 14% by the end of 2019, bolstered by strong global demand and Brazil's entry into an off-year in its biennial production cycle, a Reuters poll of nine traders and analysts showed on Friday.
The survey participants expect the global supply balance to swing into a deficit of an estimated 2.5 million 60-kg bags in 2019-20, according to the median forecast, following a 2018-19 surplus.
"We will start to feel less overall production with steady to firm demand," said Jack Scoville, vice president at Price Futures Group.
The looming deficit is expected to lift arabica prices to $1.15 per pound by the end of 2019, compared with Thursday's close of $1.0065. Still, this is lower than the $1.25-per-pound price that respondents had forecast in February for year-end.
The last time the front-month contract hit $1.15 was November 2018.
Brazillian Crop Drop
Global coffee prices crashed to 13-and-a-half-year lows in April as the market struggled to absorb a record-large, 62-million bag 2018-19 crop from top-grower Brazil.
A frost in the world's top producer early this month lifted prices to 2019 highs, but they have since dipped and are once again eyeing the sub-$1.00-per-pound level, as the impact of the frost appears limited.
Brazilian output in 2019-20, an off-year in the biennial production cycle, is seen at 56 million bags, of which 38 million bags will be arabica, according to the median forecast. This is lower than the U.S. government's forecast of 59.3 million bags.
Either level would be the largest-ever production for an off-year in Brazil.
Brazil's dominance of the coffee supply has extended to currency markets as well. The performance of the Brazilian real has become more strongly correlated with prices, with a weak real encouraging producers there to sell more coffee, which is priced in dollars.
The real will likely be relatively stable through year-end, and therefore it will have little effect on coffee prices, said Shawn Hackett, president of Hackett Financial Advisors.
For 2020-21, an on-year for the crop, the output is seen at 61.5 million bags, which would shift the global market back to a surplus of 1.5 million bags, respondents said.
In Vietnam, the world's top producer of robusta, bulk beans commonly used in instant coffee, production is forecast at 29.5 million bags.
However, Hackett noted that there is the possibility of an active Asian typhoon season which could result in a supply shock.