Coffee: a commodity to be awakened by the Chinese factor

According to the data, coffee was the commodity with the biggest increase in the first half of this year, and Arabica coffee futures have risen 55% since the beginning of the year. As a tropical crop, coffee is the commodity variety most affected by El Ni ñ o climate. Historical data show that when El Ni ñ o was strong in 1997, global coffee prices rose 200 per cent in 1997-1998; even in small El Ni ñ os in 2009, coffee prices rose nearly 100 per cent in 2009-2010.

Coffee will be the next agricultural commodity most affected by China's rise. For the affluent Chinese, the demand on the tip of the tongue is no longer limited to food, metal and meat, and cultural foods such as coffee, which represent a higher taste of life, are also popular.

A set of data can illustrate China's "coffee prospects": at present, China's annual coffee production is slightly more than 60, 000 tons, while the global annual output is 8.2 million tons, accounting for less than 1%. At present, China's coffee consumption is an average of 3 cups per person per year, while the world average is 240 cups per person per year.

Although China is the world's leading commodity company, it is an outsider when it comes to coffee. The Arabica Coffee Futures Market in New York is the global pricing center, and what many Chinese enterprises thousands of miles away can do every day is to passively accept its ups and downs.

Attractive prospects: coffee in China

"Chinese consumption of coffee is growing in double digits, and it is one of the few agricultural commodities that have not been affected by China's rise." Goldman Sachs, an international investment bank, said.

The relevant data can explain this amazing space for development: first, China's coffee demand is growing at an average annual rate of 15%, while the world average is 2%. There are more than 200 million potential coffee consumers in China, with per capita consumption of 8 cups per year, which is lower than that of 100 cups per year in Southeast Asia and 300 cups per year in Japan. At present, China's annual consumption is about 80,000 tons, less than 1% of the world's total consumption. Second, the annual per capita consumption of coffee is 5.4 kg in Western Europe, 1.9 kg in Singapore and 1.4 kg in Taiwan, and less than 50 kg in mainland China.

As a culture associated with fashion and modern life, coffee is being accepted by more and more Chinese people. The hot coffee with its rich aroma is intoxicating, and cafes everywhere are good places for people to talk, listen to music and rest.

"the development of China's coffee industry is closely related to China's economic growth, the continuous improvement of people's living standards, the integration of Chinese and Western economies and cultures brought about by reform and opening up, the growth of urban modern consumer population, and the younger generation gradually becoming the main force of domestic consumption." According to the Coffee Bean Branch of the China Fruit Circulation Association, there is a significant positive relationship between the level of education, monthly household income and the frequency of drinking coffee, which means that coffee, an imported western drink, is a way of life symbolizing the successful class on Chinese mainland.

The charm of culture is the charm of the market. According to the relevant survey, even in metropolises such as Beijing and Shanghai, each person consumes only 20 cups per year. In Japan and Britain, each person drinks an average of one cup of coffee a day. Japan and Britain are both world-famous tea culture countries, which have developed into a huge coffee market. China, with a strong tea culture, has a broad potential for coffee consumption and is bound to become one of the largest coffee markets in the world.

According to the International Coffee Organization (ICO), China imported 1.4 million bags of coffee and consumed 1.1 million bags in 2012, far below the 23.5 million bags of coffee imported by the United States, the largest coffee consumer in the world. In the 1960s, Japan consumed only 250000 packets of coffee a year, but now it consumes 7 million packets, said Pablo Dubois, head of ICO operations. The Chinese market has also shown signs of developing along this trend.

"in a short period of time, China will certainly become the world's largest consumer." Dong Zhihua, former director of the Yunnan Coffee Factory and now vice president of the Yunnan Coffee Association, said that at present, the major consuming countries in the world, including the United States and Brazil, have an annual consumption of more than 1 million tons. But comparing China with their population base, coupled with China's double-digit annual demand growth rate, it is believed that it will soon overtake them. "I am full of confidence in this."

Thrilling fluctuations: coffee prices

Coffee may be one of the most volatile commodities. Not only because it is an agricultural product [0.99% funding report], but also because it is too concentrated in tropical climates. According to the data, the global production of coffee is concentrated in Brazil, accounting for about 40% of the world's production. If Southeast Asia and other places are included, Vietnam and Indonesia account for 60% of the world's output. And these areas are the areas with high incidence of abnormal climate, especially El Ni ñ o. Historical experience shows that any abnormal climate in the tropics will cause the price of coffee to rise rapidly.

In the first half of this year, for example, the main producing areas of south-central Brazil suffered the worst summer drought in at least 70 years, destroying a variety of tropical crops such as sugar cane, coffee and oranges. The prices of Brazilian coffee and cocoa beans have risen by about 65% and 30% respectively since the beginning of the year. Arabica coffee futures have jumped 58% this year-the biggest gain in the world in the first half of the year.

The Standard & Poor's Commodity Price Index also shows that the prices of soft commodities, including coffee, have risen by an average of 15-20% so far this year, significantly stronger than other commodity prices.

Under the influence of the international market, after more than two years of "price winter", the purchase price of coffee beans in Yunnan Province has soared this year-from about 13 yuan per kilogram to about 25 yuan at present.

UBS Securities Research report believes that the first to bear the brunt of El Ni ñ o is the tropical seeds. The occurrence of El Ni ñ o has the greatest impact on the climate of the Pacific [- 1.28% funding] region, and the growth of tropical crops is mainly concentrated in South America, Southeast Asia and parts of Africa. Tropical crops are basically produced all the year round, and the dry climate will inevitably impact their yields and push up the market prices of these tropical crops.

Historical data show that the price of coffee, cocoa beans and so on is most obviously affected by El Ni ñ o. When El Ni ñ o was strong in 1997, global coffee prices rose 200 per cent in 1997-1998; even in small El Ni ñ os in 2009, coffee prices rose nearly 100 per cent in 2009-2010.

This year, coffee cultivation in northeastern Brazil has been damaged, which has dealt a heavy blow to coffee production. Arabica coffee futures have risen as much as 58% since the beginning of the year, and coffee prices are expected to rise by a further 50% and 100% if the world encounters El Ni ñ o this summer. " UBS Securities believes.

Coffee Futures: looking forward to rebirth

"China has no position in the international coffee market." Dong Zhihua said that the global coffee pricing center is the coffee futures market of the US Intercontinental Exchange (ICE). China has no say at all, and domestic coffee companies can only passively accept the price. He believes that this is the most serious problem facing the Yunnan coffee industry and even the whole Chinese coffee industry.

In addition, many coffee companies are powerless in the face of price fluctuations.

In mid-December 2013, the low temperature and frost weather in most parts of Yunnan Province caused the affected area of coffee in the province to be more than 300,000 mu, with a total harvest of about 50,000 mu, accounting for more than 20% of the total coffee planting area in Yunnan, causing direct and indirect economic losses of more than 300 million yuan.

In the face of natural disasters, Xiong Xiangren, president of Yunnan Coffee Industry Association and chairman of Hougu Coffee, said that although the industry association has taken many measures to mitigate losses, "in the long run, the plan to finally enable Yunnan coffee industry to guard against market risks and fight natural disasters is to establish a coffee spot trading platform and upgrade to a coffee futures platform after the spot platform is fully developed." Finally, through financial means to resist all kinds of risks. "

In fact, as early as the early 1990s, Dong Zhihua led Yunnan coffee enterprises to participate in coffee futures hedging trading in Hainan China Merchants at that time. "Yunnan coffee is purchased in December every year, but export contracts are signed with foreign customers in batches, so that the inventory of enterprises is faced with the risk of price fluctuations." Dong Zhihua said that at that time, the only listed variety of coffee futures was Hainan China Commercial Institute, which opened an account for hedging trading in order to avoid risk.

"at that time, the futures market did not have the function of price discovery and risk aversion, and many people were speculating. Although we had the will and practice of hedging, we were eventually trapped in it." Speaking of the past, Dong Zhihua is full of helplessness and regret.

"now is the time to list coffee futures." Dong Zhihua said: after more than 20 years of governance, rectification and standardized development, the futures market and the 1990s are two different concepts. Since there is a need for risk aversion in the coffee spot market, the futures market should provide the necessary financial instruments, which is also a necessary measure to advocate and implement the spirit of the new "National Nine articles".

"now an agency has asked me to draft a contract for coffee futures." Dong Zhihua revealed to the China Securities News. He said that he is one of the drafters of the standards of the raw coffee and roasted coffee industry and has some experience in the industry. Dong Zhihua said that although he is old, as long as he is promoting the listing of coffee futures, he will try his best to participate.