Dive Deep into the Coffee Market

By Julio Sera, INTL FCStone

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One of my favorite aspects of working in the coffee trade – as opposed to markets like soybeans, precious metals or government bonds (like some of my colleagues) – is that so many people have such a direct experience with it every morning. In fact, we drink approximately 3.5 billion cups of coffee each day – equivalent to one cup each for nearly half of all the people on earth right now. That’s a lot of folks “jonesing” for “Joe.”

Stats like that ensure that I’m never at a loss for conversation starters. For example, can you name the top 10 coffee-producing countries in the world? In order?

How about the top 5 importers globally? (This one’s a bit of a trick question, which I’ll get into below.)

Or on the business side, who in our industry typically keeps the most cents from each cup of coffee sold? Hint: it’s not the farmer, the roaster or the retailer.220x280_coffeeinfo_10-2016

If you think you know the answers, you can check them by downloading a sharp new coffee infographic put together by my colleagues in INTL FCStone’s Market Intelligence arm. Perfect for printing out and pinning up, it covers everything from the basics of bean varieties and plant lifecycles to the latest estimates on global stocks. I’ll bet you learn at least one thing you didn’t know before.

But don’t be fooled: This infographic delivers more than just “fun facts.” It provides a real peek into how commodity risk managers like me see the entire coffee market.

For example, knowing which countries account for what percentages of global production gives me insights into potential fluctuations in supply. Drought in Brazil, which is overwhelmingly the world’s #1 producer, will likely have a bigger impact on global supply than drought in Guatemala, which weighs in at #10.

Of course, exactly when that drought occurs makes a difference, too, which is why understanding the coffee plant’s lifecycle and a country’s yearly harvest cycle is critically important. The 2016 harvest in Brazil is over, and now market participants are weighing the impact of next year’s biennially lower production cycle, which could affect supply at this time in 2017.

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A coffee exporter in Brazil examines coffee crops devastated by drought. ANADOLU AGENCY/GETTY IMAGES – via  Wall Street Journal

You can take the analysis a step further by looking at current global stocks. At the outset of the new 2016/2017 crop year, U.S. green coffee stocks remain high, as do stocks in Europe, and Japan’s stocks are at historical highs. However, ICE U.S. certified stocks are at multiyear lows, ICE London robusta stocks have declined 30 percent thus far this year, and producer-country stocks like Brazil’s are estimated to be quite low. And how confident can we be in that estimate – given the chronic lack of transparency surrounding Brazil’s reporting?

All of these factors affect global prices. And global prices affect the bottom line for everyone involved in the coffee trade. Like I said, we’re talking more than trivia here!

I should note that that’s just the supply side. In terms of demand, we know that the European Union and the U.S. are the world’s two largest importers, in that order. But when you consider that the EU comprises 28 countries – all with differing customs and consumption habits – you realize that the U.S. is actually the most important single market for coffee in the world.

And that’s what makes the National Coffee Association so important. It’s the only organization that researches and publishes a yearly National Coffee Drinking Trends report (now 66 years running) in the most important coffee market in the world. It’s where I go to dive deeper into that “3.5 billion cups” number at the top of this post. For example, how many of those are single-serve, versus five year ago? The answer’s important to a lot of businesses.

That’s why I’m so excited to attend the NCA Annual Convention, and so glad that my company is a serving as a sponsor. The conversations we have there – and the information we share – have the potential to shape the coffee trade now and for years to come. Don’t miss it.

Download INTL FCStone’s coffee statistic infographic

Julio Sera is a Senior Risk Management Consultant and Risk Manager with the FCM Division of INTL FCStone Financial Inc. Comments in this article are market commentary and are not to be construed as market advice. Trading is risky and not suitable for all individuals.

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