The end of 2014 is fast approaching and like most of us, the coffee market is beginning to wind down in time for Christmas and New Year.
Here, DRWakefield coffee trader Phil Searle talks us through the latest market developments, how some of the issues we've been following this year – including the drought in Brazil and the spread of roya fungus – are currently progressing, and what he believes 2015 holds for the industry.
Activity in Brazil
Following a record drought in Brazil early this year that bordered on almost humanitarian scale in some parts of the country, with scorching daily temperatures causing widespread parched coffee crops, producers are now getting firmly back on their feet. Regular rainfall is helping to replenish groundwater stocks and soil moisture, and breathe life back into stressed coffee trees.
It is still too early to tell how the next crop will develop for 2015 and what, if any, long-lasting damage the drought will have had on the trees, as conflicting reports continue to circulate as to the extent of the damage.
Phil explained that around 50 million 60 kg bags of coffee have now been exported from Brazil during the current season, which is a slight improvement on previous predictions, and buoyed by carryover stocks from the previous year.
He added that falls in the market have been primarily attributed to the South American nation in recent months, driven by the positive outlook for the future, as well as a general sell-off in soft commodities. Brazil is a key driver for the NYC terminal market owing to its size, producing roughly one-third of all global production.
Roya fungus update
The spread of roya fungus in 2013, better known as coffee leaf rust, has also begun to improve in many of the Central American producing countries that were afflicted with it. The fungus thrives on leaves and cuts off vital nutrients to the cherries, resulting in trees producing fewer and lower-flavoured coffee beans.
However, he noted that in some areas, farmers have been forced to uproot their trees to embark on a replanting exercise with new resistant varietals employed to withstand future outbreaks. This is not only a costly strategy, but also one that will take many years to bear fruit. This is because coffee trees take four to five years to reach maturity and its full producing capacity.
What's been happening in Jamaica and Hawaii?
DRWakefield's weekly coffee market reports tend to focus primarily on the world's larger coffee-producing nations, with countries from East Africa, Latin America and Asia usually taking prominence.
But in recent weeks, activity (or lack of) in Jamaica and Hawaii has also made it into our reports – why?
Coffee producers in Jamaica have been hit hard in recent years – in 2012, Hurricane Sandy hampered final crop developments and damaged many trees, while in 2013, the long-lasting effects of Sandy were still being felt as trees were continued to recover and many estates had to replant trees that had been uprooted.
Then, 2014 heralded a disastrous combination of leaf rust and berry borer, which has reduced the crop to around one-third of what it was only three years previously.
"One of our suppliers said he's never seen the country's crop this bad in 20 years," Phil added.
Hawaii is also struggling this season, with a large proportion of its coffee plants affected by insect damage. Broca – coffee berry borer – has thrived in many of the nation’s abandoned farms.
Phil explained: "This means the quality of the coffee will be greatly reduced, resulting in much of the coffee not meeting the typical export standards.
“Unsurprisingly, this is going to have a dramatic influence on price this season, and these already very expensive coffees will be reaching stratospherically high levels this season."
What's next for the market?
Phil said that "you can never really be certain" what will happen on the terminal market over the Christmas and New Year period. Many traders prefer to leave the markets well alone over the festive season and this absence of players can result in some interesting movements as very little volume is needed to move the market in either direction.
"It's a lot quieter for us as well. Many of our clients are closed for Christmas, as are our suppliers."
As for predicting price levels for 2015, “we can make an educated guess based on current producing levels, consumption figures and crop reports coming out,” says Phil.
“But it is not an exact science, and with so many influencing factors and the volatility involved, we can never be 100 per cent certain."
Photo credit: Thinkstock/srdjan11