Arabica Coffee Futures Price prospects 2016 : Arabica coffee futures will make a stronger start to 2016 than investors are pricing in, boosted by dryness concerns which have enhanced the prospects of a "tight physical market" for beans, Rabobank said.
The bank raised by 800,000 bags, to 2.7m bags, its forecast for the world coffee output deficit in 2015-16, citing the effects of El Nino, which is linked to dryness in some major producing countries.
"Mexico and Central America have remained relatively dry, especially in the early stages of cherry development, which forced us to reduce the forecast for 2015-16 crops," Rabobank said, seeing Honduras as the only major growing country in the region to see a notable year on year rise in output.
Ethiopia, Africa's top coffee grower, "is suffering from drought", which will affect at least part of the key Harar area.
And parts of South East Asia have been hit too, although the impact on Indonesia may not be felt until 2016-17, while in Vietnam, "the use of irrigation there may prevent a loss of production".
'Rather low physical coverage'
Meanwhile, coffee exports from Brazil, the top coffee producing and shipping country, will "decelerate" in the first half of 2016, as stocks run low after two disappointing harvests, pegged by the bank at 48.5m bags last year and 48.4m bags in 2015.
Brazilian stocks entered 2015-16 at 8m bags, "not much higher than working stocks", pegged at a little over 5m bags.
And it looks like coffee roasters and blenders have a "rather low physical coverage" of beans, to judge by US regulatory data late on Friday showing that commercial investors held a net long of 4,805 contracts in arabica coffee futures and options.
Historically, the commercial net long position is "very negative", Rabobank analyst Carlos Mera said, with hedging by producers more than offsetting the pressure by buyers for forward coverage.
Coffee Price prospects
The bank said it was standing by expectations for arabica coffee futures "to go north of 130 cents a pound" in the January-to-March period of 2016.
That is above the 121.70 cents a pound that New York arabica coffee futures for March 2016 were priced at on Monday.
The prospect of buying by index funds in January's rebalancing, process which Societe Generale has said is likely to affect coffee more than other commodities other than nickel, will add to the support to prices from news of lower crops expected to "surface" early next year, Mr Mera said.
Return to surplus
However, world coffee production looks likely to return to surplus in 2016-17, with output seen exceeding demand by 3.7m bags, the bank added, in a "preliminary" estimate for next season.
This forecast includes an expectation of a 58m-bag Brazilian crop – up nearly 10m bags year on year, although 3m bags below the level it had been expecting after a positive start to flowering, in September.
"After the excellent rainfall levels in the first half of September, rain between mid-September and the end of October has been rather poor in arabica areas," Mr Mera said.
Crops in some parts of Minas Gerais, the top arabica growing state, as well as the key robusta producing state of Espirito Santo have suffered "irreversible damage".
Still, the prospect of a Brazilian crop below 60m bags could be supportive for prices, given long-held expectations of a strong rebound in production from drought-affected 2014 and 2015 levels.
The bank raised by 800,000 bags, to 2.7m bags, its forecast for the world coffee output deficit in 2015-16, citing the effects of El Nino, which is linked to dryness in some major producing countries.
"Mexico and Central America have remained relatively dry, especially in the early stages of cherry development, which forced us to reduce the forecast for 2015-16 crops," Rabobank said, seeing Honduras as the only major growing country in the region to see a notable year on year rise in output.
Ethiopia, Africa's top coffee grower, "is suffering from drought", which will affect at least part of the key Harar area.
And parts of South East Asia have been hit too, although the impact on Indonesia may not be felt until 2016-17, while in Vietnam, "the use of irrigation there may prevent a loss of production".
'Rather low physical coverage'
Meanwhile, coffee exports from Brazil, the top coffee producing and shipping country, will "decelerate" in the first half of 2016, as stocks run low after two disappointing harvests, pegged by the bank at 48.5m bags last year and 48.4m bags in 2015.
Brazilian stocks entered 2015-16 at 8m bags, "not much higher than working stocks", pegged at a little over 5m bags.
And it looks like coffee roasters and blenders have a "rather low physical coverage" of beans, to judge by US regulatory data late on Friday showing that commercial investors held a net long of 4,805 contracts in arabica coffee futures and options.
Historically, the commercial net long position is "very negative", Rabobank analyst Carlos Mera said, with hedging by producers more than offsetting the pressure by buyers for forward coverage.
Coffee Price prospects
The bank said it was standing by expectations for arabica coffee futures "to go north of 130 cents a pound" in the January-to-March period of 2016.
That is above the 121.70 cents a pound that New York arabica coffee futures for March 2016 were priced at on Monday.
The prospect of buying by index funds in January's rebalancing, process which Societe Generale has said is likely to affect coffee more than other commodities other than nickel, will add to the support to prices from news of lower crops expected to "surface" early next year, Mr Mera said.
Return to surplus
However, world coffee production looks likely to return to surplus in 2016-17, with output seen exceeding demand by 3.7m bags, the bank added, in a "preliminary" estimate for next season.
This forecast includes an expectation of a 58m-bag Brazilian crop – up nearly 10m bags year on year, although 3m bags below the level it had been expecting after a positive start to flowering, in September.
"After the excellent rainfall levels in the first half of September, rain between mid-September and the end of October has been rather poor in arabica areas," Mr Mera said.
Crops in some parts of Minas Gerais, the top arabica growing state, as well as the key robusta producing state of Espirito Santo have suffered "irreversible damage".
Still, the prospect of a Brazilian crop below 60m bags could be supportive for prices, given long-held expectations of a strong rebound in production from drought-affected 2014 and 2015 levels.
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