Hedgepoint: European coffee stocks grow in June, but remain below historical averages

Last week, the European Coffee Federation (ECF) released stock numbers up to June, showing a strong increase of 1,33 million bags compared to April (+18,8%) - the last number released -, reaching 8,41 M bags.

“However, European numbers for June are still 3,15 M bags below June/23, a significant drop of 27,3%. Compared to the historical average for this period (13,26 M bags), the drop is even greater, 4,85 M bags, or -36,5%”, highlights Laleska Moda, Coffee analyst at Hedgepoint Global Markets .

Also according to the analyst, this trend was also observed by type of coffee, with stocks of Robusta and natural and washed Arabica well below historical levels in June. “Compared to April data, however, all types showed an increase, with Robusta having a stronger recovery trend, with an increase of 35,7%, while natural Arabica and washed Arabica increased by 18,1%. % and 5,7%, respectively”, he notes.

The lower numbers mainly reflect weaker imports from 2023 to early 2024, combined with resilient demand that has led to a sharp decline in European inventories since last year, reaching their lowest levels in March/24 at 6,4 M of bags.

The cumulative import numbers for the 23/24 season (Oct/23-May/24) in the EU are still 921,76 thousand bags below the average levels of the last 5 years and 914,82 thousand bags below the volume recorded in the same period of previous cycle. On the other hand, apparent consumption is almost 360 thousand bags above the historical average.

“On the other hand, it is good to note that the trend in recent months has been an increase in imports, with the accumulated numbers for 2024 reaching 20,3 M bags by May, an increase of 1,6% in relation to historical averages and of 4,9% compared to the same period in 2023. The scenario of still low stocks could also cause European countries to continue exporting more in the coming months, which could also offer support to coffee prices in the medium term”, he explains.

Laleska highlights that, regarding the origins of coffee imports, some interesting trends can be observed when analyzing the 23/24 cycle. In the period from October/22 to May/23 (22/23 season), imports from Vietnam, Indonesia and India represented 33,9% of the total volume, but, in the same period of 23/24, this share fell to 27,8%. This behavior was to be expected given the crop failures in Vietnam and Indonesia in 23/24.

Although there has been some backlash in the final months of 2024, European imports from these countries may remain at the lower end, especially given limited stocks in Vietnam. The slow start of exports in Indonesia could also contribute to this scenario, even if a larger harvest is expected in 24/25.

“However, this situation favors Brazilian exports to the bloc. While in 22/23 Brazilian grains represented 33,5% of total European imports until May/23, this number rose to 41,4% in 23/24. Brazil's export data in recent months has also shown an increase in shipments of arabica and especially Robusta to the EU, due to the decline in Southeast Asia. Therefore, Brazilian shipments to the EU are expected to remain high in 2024, especially in the case of conilon”, he points out.

In the case of washed arabica, imports from Central America and Mexico decreased steadily until January this year, but this was offset by an increase in the share of Colombian and Peruvian coffees.

In summary, the recent increase in ECF stocks is in line with historical seasonality, but also reflects changes in trade flows compared to the second half of 2023. In this case, it is important to highlight the increase in Brazilian shipments to the bloc, given supply limitations in Southeast Asia. Robusta imports also showed a more significant improvement compared to Arabica types, highlighting the resilient demand for the former.

However, EU stocks still remain well below historical averages – due to lower imports in 23/24, to date – and could be a bullish point in the medium term. However, it is worth noting that once inventories in destinations begin to approach normal levels, these could become a key bearish factor in the future.