Reuters predicts that the price of Arabica coffee will rise by more than 20% in 2019
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A recent survey of nine coffee traders and analysts by Reuters, a world-renowned financial information platform, shows that Arabica coffee prices will rise by nearly 20% by the end of 2019. The main reason is that the reduction in coffee production in Brazil this year will lead to global coffee supply falling short of demand, thus pushing up coffee prices.
According to a Reuters poll, survey participants expect a median global coffee deficit of 1 million bags (60 kg each) in 2019 / 20, compared with a surplus of 4.25 million bags in the just-concluded 2018 Universe 19.
Global supply constraints are expected to push Arabica prices to $1.25 a pound by the end of 2019, more than 20 per cent higher than current coffee futures prices.
Caroline Bain, an analyst at Capital Economics, said: "the price of Arabica should get some support because 2019 will be a year of reduced coffee production in Brazil."
Respondents expect Brazilian coffee production to reach 55 million bags in 2019, little change from previous forecasts.
That's down about 8.3% from record production in 2018 / 19, and its sheer size helped push Arabica prices to a nearly 13-year low of 92 cents a pound on Sept. 18. Since then, prices have been close to these levels, well below the cost of production in many countries. This forces some growers to reduce investment in their farms. One analyst said this would be an important turning point in the reduction of coffee production in 2019 / 20.
At the same time, respondents also expect the performance of the Brazilian real to continue to affect Arabica futures.
In the weeks leading up to Brazil's presidential election in October, Arabica prices were in line with the Brazilian real and continued to track the performance of the currency. In the future, the strength of the Brazilian real will push up coffee prices.
Analysts also keep a close eye on Brazilian policy, especially the minimum purchase price or the potential of a safety net for coffee farmers in the country. Sean Hackett, president of Hackett Financial Advisors, says these mechanisms will be an important support for coffee prices.
The overall outlook for robusta beans is similar, mainly for instant coffee or added to mixtures as cheaper ingredients. Robusta prices are expected to rise to $1775 a tonne by the end of 2019, up 16 per cent from current prices, according to opinion polls.
Vietnam is the world's largest robusta coffee grower, producing 29.75 million bags in 20119 / 20, roughly the same as the estimated production in 2018.
In the future, as the instant coffee market expands to emerging markets, demand should be sufficient to absorb high Robusta production.
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