Arabica coffee stocks hit 26-year low, supporting prices
ICE data showed arabica stocks fell to 224,011 60kg bags, their lowest level since May 2000.
Arabica coffee stocks on the ICE exchange plummeted to a 26-year low on August 28, as dealers raced to secure dwindling supplies due to worries of a prolonged shortage. According to ICE data, the quantity of arabica stocks plummeted to 224,011 60kg bags, marking the lowest level since May 2000. This significant drop has helped maintain benchmark arabica futures above US$3 (S$3.80) per pound for the past couple of months.
Typically, exchange stocks fluctuated between one million and five million bags from the mid-2000s to early 2022, with industry observers deeming the present levels as critically low. The tight supply has caused spot, or front-month September, arabica futures to trade at a premium of around 32 cents per pound over December contracts, despite the anticipated easing of the shortage in time.
As per broker Michael J Nugent, "the nearby market has sent a clear signal: coffee available somewhere is not necessarily coffee available here, now, in deliverable form." The global coffee market is projected to experience a surplus of 8.2 million bags in the 2026-27 season, up from 1.7 million in the previous season, as top producer Brazil is expected to harvest a record crop.
However, a significant portion of the crop remains tightly held in farmer's warehouses, as logistics backlogs mount and Brazil continues to offer the most cost-effective place for coffee storage. El Nino-induced heavy rains in Brazil in June and July delayed the harvest and diminished the quality, curbing the near-term supply of premium beans suitable for exchange-traded stocks.
Analyst Laleska Moda from Hedgepoint noted that the rate of stock replenishment in destination markets is crucial, as an expected surplus remaining concentrated in origin countries could prolong price volatility, as producers maintain greater negotiating leverage. Exchange-certified stocks are closely monitored due to their transparency and daily updates.
Many algorithm-driven funds are programmed to buy when inventories decline, amplifying price fluctuations. Low stock levels can also pressure traders who hold short futures positions, or bets on falling prices, compelling them to repurchase contracts to close their positions, thereby further bolstering prices. ICE arabica futures serve as a benchmark for pricing actual coffee.
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