Robusta and Arabica Prices Narrow
Posted on: 2016-12-15 11:18 AM The price premium between arabica and robusta beans is continuing to narrow and this could spur an unprecedented switch to premium arabica beans from robusta beans.
Supplies of robusta beans, the lower quality coffee bean, generally used in instant coffees and coffee flavored foods, have slumped due to a drought in top producer Vietnam, and this supply shortage has supported an ascent in prices. Arabica supplies, however, are looking increasingly good when it comes to the upcoming crop and that has caused a massive retreat in arabica prices. In recent weeks arabica futures have flirted with bear market territory and are trading near a five-year low.
At the same time, robusta availability has been limited and this may encourage buyers who need coffee supplies purchasing arabica instead. Short-term availability has fallen as Vietnamese farmers have reportedly held back stocks. The Vietnamese harvest is nearing completion. The premium of arabica futures on ICE Futures US has recently fallen as low as 25 cents per lb., the lowest premium since the current robusta futures contract was created in 2008.
Arabica is expected to trade within range-bound territory in the near term, according to Rabobank noting that losses will steady amid signs of “surprisingly high” demand. When it comes to robusta, the market is likely to continue to remain supported. Rabobank is expecting a 5.3 million bag production deficit in robusta coffee in 2016-17, and another 2.4 million-bag shortfall next season. If the deficit holds through next season, it will be the fourth-consecutive deficit.
If the rumor that Vietnamese farmers are holding back supplies is true, a release of supplies could result in a short-term retreat in robusta futures, but longer term the supply deficits will support prices. With Arabica supplies looking better, this could mean a relatively narrow premium between the two beans at least for the next season. However, if substitution really takes off this could cause the premium to increase.
