Jittery Colombian Coffee Exporters Assess Explanations For Sharp Drop in Differentials, Fear Global Recession
Coffee Network (Bogota) -Coffee exporters operating in Colombia, the world's largest producer of high-quality Arabica beans, are assessing a series of facts including a potential reduction in international demand for Colombian beans owing to a global recession.
International demand for Colombian beans has prompted an unusual drop on differentials on Colombian beans, which fell from +80-+84 over New York to +60-+62 over the C contract in no more than three weeks.
“Exporters will not admit but this is unusual. This exaggerated drop goes beyond a seasonal fact,” said a source who declined to be mentioned,” the source said, noting that the worrisome situation was discussed during a meeting of exporters at the private coffee exporters association.
An European coffee importer said coffee consumption in the EU is dropping more as expected. Coffee dropped already 12%, and the situation apparently will continue next year. The prices of origin are too high, and blends are adjusted with more Robusta to be used, he said.
But another coffee exporter said as coffee prices in the spot market are right now higher than future coffee prices, no one is willing to buy beans in the spot market.
“This situation is due to the switch of the contracts. People do not want to buy on the spot. They rather buy against the March contract but not spot,” Juan Alvaro Arboleda, a large coffee grower and exporter said.
Another coffee exporter said the sharp drop in Colombian differentials over New York occurs as large international roasters await Colombian coffee purchases until October, when the main harvest begins, as a large bulk of beans flows the market, prompting a reduction in prices.
“This is a seasonal behavior that has occurred repeatedly except for 2020 and 2021, and it makes sense as roasters await the main harvest to begin to secure beans. Right now, they are not buying,” said the large exporter, who declined to be named.
Gustavo Gomez, director of the Colombian private exporters association Asoexport, rejects rumors about low international demand amid a recession, claiming that coffee will always be consumed no matter how deep could be a recession.
“Coffee was drunk even during the pandemic. What could be worse than that and it proved that coffee will always be drunk, no matter how difficult the situation is,” Gomez told Coffee Network in a telephone interview.
In fact, Gomez said Colombia would likely export 890,000 bags of 60-kg in September, up from 872,000 bags in August. But exports in September will be much lower than the 1.020 million bags shipped in July. IN the coffee year, October-August, Colombia shipped 11.050 million bags, down 6% over the same period in the year earlier period, according to the coffee growers federation.
“The reduction in exports is the result of lower production. Demand has not fallen even though the differential fell amid speculation. Exports continue,” he said.
When asked whether international buyers have replaced Colombian beans with cheaper Arabica beans such as Honduras, Peru or Guatemala, Gomez said the flows from those countries are small to replace the Colombian market.
Peru is expected to export 3.36 million bags which is the lower end of the target. Initially, Peru projected to ship 4.2 million bags, which was the higher end of the target, but as production is not growing at the pace they expected, the Peruvian coffee association now sees exports in the lower end of the target.
Honduras is also expected to export less coffee. It is forecast to ship 4.6 million bags, a reduction of 20% compared to the 5.8 million bags exported in the previous period. To date, 99.8% of the forecast has been executed.
“Those are smaller productions. And replacing Colombian coffee with other beans is not easy,” Gomez noted.
The reduction in production has prompted high concerns among multinationals. Some are claiming Colombia could produce as lower as 10.5 million bags down from the 12 million bags, originally expected, a market analyst said.
In the 12 months period through August, Colombia produced 12.05 million bags, down 9% from the 13.18 million bags in the same period a year earlier, according to official coffee growers federation figures.
By Diana Delgado
