PART III: SECTION D

Market overview 2020/21: a year of recovery

Key findings

• The ICO Composite Indicator Price (I-CIP) started coffee year 2020/21 at 106.27 US cents/lb, before reaching a season low of 103.30 US cents/lb on 21 October 2020 and averaging 105.85 US cents/lb for October 2020. Subsequently, the I-CIP increased every month to end the coffee year at an average 170.02 US cents/lb in September 2021, a 22.0 percent year-on-year rise.

Coffee prices a recorded a substantial increase during coffee year 2020/21. The ICO Composite Indicator Price (I-CIP) started the coffee year with a monthly average of 105.85 US cents/lb in October 2020 to reach 170.02 US cents/lb in September 2021. Coffee year 2020/21 has been qualified as year of coffee price recovery. The average of I-CIP for coffee year 2020/21 is 130.50 US cents/lb, representing 21.7 percent compared with US cents 107.25 US cents/lb in coffee year 2019/20.

Prices for all group indicators have recorded similar upward trends in 2020/21. The Brazilian Naturals were the best performing, gaining 83 percent, rising from an average 100.37 US cents/lb in October 2020 to an average 183.72 in September 2021. The Colombian Milds gained 55.8 percent over the course of coffee year 2020/21, increasing from an average 154.28 US cents/lb in October 2020 to an average 240.38 US cents/lb in September 2021. During the same period, Other Milds recorded a 48.3 percent increase from 152.06 US cents/ lb in October 2020 to 225.54 cents/lb in September 2021. The Robustas group indicator grew by 53 percent from 68.36 US cents/lb in October 2020 to 104.6 US cents/lb in September 2021.

• Prices in futures markets followed the same trend over coffee year 2020/21. The monthly average of the 2nd and 3rd positions for the New York Futures market that reflects the market for Arabicas increased by 72.8 percent from 110.70 US cents/lb in October 2020 to 191.30 US cents/lb in September 2021. The monthly average of the 2nd and 3rd position for the London Futures market that reflects Robusta coffee rose by 60.5 percent from 59.14 US cents/lb in October 2020 to 94.91 US cents/lb. • Coffee prices experienced several spikes of high volatility during coffee year 2020/21. However, on average, price volatility remains in the same range compared to the previous coffee year.

Exports of all forms of coffee increased by 1.6 percent to 129.4 million 60-kg bags in coffee year 2020/21. It is a relatively slower rate of recovery as compared with the 4.5 percent decrease in coffee year 2019/20, the sharpest drop since 1994, when the global exports of all forms of coffee fell by 9.4 percent.

Green coffee remains the dominant form in which coffee is exported throughout the world, accounting for 90.6 percent (117.3 million 60-kg bags) of all forms of coffee in coffee year 2020/21. Exports of processed coffee (roasted and soluble) totalled 12.2 million bags representing 9.4 percent.

In coffee year 2020/21, production of coffee increased by 1.1 percent to 170.8 million bags, a recovery from 0.8 percent decrease in coffee year 2019/20. The expansion came in the face of Covid-19 travel restrictions that affected the movements of migratory coffee pickers/ farmers through many of the coffee origins, and low coffee prices over the first half of the coffee year 2020/21, which negatively affected the ability to attract the pickers and hence output.

Coffee consumption of the world increased by 1.0 percent to 165.4 million bags in coffee year 2020/21, which followed a 2.2 percent decrease in the previous year when the world had just encountered Covid-19 and the resulting pandemic was beginning to ravage its way through the global economy, resulting in the second global recession of the second millennia in 2020. As the global economy bounced back, expanding by 6.1 percent in 2021, and the world’s population began to adjust to the Covid-19 policy of restrictions of movement and social-distancing, the pattern of coffee consumption also adjusted and increased.

D.1. Coffee prices

I-CIP Prices:

International coffee prices refer to the ICO Composite Indicator Price (I-CIP). In coffee year 2020/21, prices started the year at 106.27 US cents/lb, reaching a season low of 103.30 US cents/lb on 21 October 2020. The I-CIP averaged 105.85 US cents/lb in October 2020 before making continuous, incremental gains every month and increasing to an average 121.59 US cent/lb in April 2021. In May 2021, a shift in consumer demand took place, as recovery from the Covid-19 pandemic increased consumer confidence as key lockdown measures were eased both in producing and importing countries. This shift led accelerated growth in I-CIP throughout the remainder of coffee year 2020/21, pushing it to an average 170.02 US cents/lb by September 2021. Lower inventories of certified stocks and tightening supplies added to the upward pressures on the I-CIP, which averaged 130.75 US cents/lb for coffee year 2020/21.

The I-CIP grew by 60.6 percent from October 2020 to September 2021, with the highest monthly jump of 10.8 percent, from an average 121.59 US cents/lb to an average 134.77 US cents/lb.

The I-CIP for coffee year 2020/21 averaged 130.75 US cents/lb whilst in 2019/20, it averaged 107.18 US cents/lb, compared to an average 100.57 US cents/lb for the coffee year 2018/19 and an average 111.54 US cents/lb in 2017/18. The year-on-year growth rate of the I-CIP from coffee year 2019/20 to 2020/21 stands at 22.0 percent. The highest day-on-day increase occurred from 21 July to 22 July 2021 as the I-CIP grew 8.4 percent when news of a major frost sweeping through the main coffee growing region of Brazil emerged. This sparked fears that a wide range of the crop would freeze, therefore limiting the production.

Growth:

Prices for all group indicators rose during the coffee year 2020/2021. The Brazilian Naturals were the best performing, gaining 83.0 percent, rising from an average 100.37 US cents/lb in October 2020 to an average 183.72 in September 2021. A 14.2 percent monthly rise was recorded in April-May, the biggest movement for the year, when the prices increased from an average 123.33 US cents/lb to an average 140.85 US cents/lb, for the Brazilian Naturals due to renewed concern over production estimates for the 2021/22 crop .

The noted shift in the rate of increase of the average I-CIP in May 2021 was felt throughout the different indicator groups, as the Other Milds grew by 11.0 percent from an average 167.93 US cents/lb in April 2021 to an average 186.46 US cents/lb in May 2021. The Colombian Milds showed a similar growth rate for the same period, rising by 10.0 percent from an average 180.91 US cents/lb to an average 198.99 US cents/lb, the Robustas grew 6.8 percent during the same period to an average 79.68 US cents/ lb. However, the Robustas had the biggest single monthly growth rate among all Group Indicators, jumping to an average 94.47 US cents/lb in July 2021 from an average of 84.83 US cents/lb in June 2021, an increase of 11.4 percent, on the emerging news of severe frost in Brazil and resulting potential shift in demand.

The Colombian Milds gained 55.8 percent over the course of coffee year 2020/21, increasing from an average 154.28 US cents/ lb in October 2020 to an average 240.38 US cents/lb in September 2021. Whilst the Other Milds performed the best amongst all the Indicator Groups in coffee year 2019/20, rising 31.2 percent, making the smallest gain in coffee year 2020/21, jumping by

Figure D.1: ICO Composite Indicator Daily Prices

Source: ICO Figures Compiled by Author

48.3 percent to an average 225.54 US cents/lb in September 2021 from an average 152.06 US cents/lb in October 2020. Lastly, whilst Robustas grew 6.0 percent in the 2019/20 coffee year, they performed much better in the 2020/21 coffee year, where they grew 53.0 percent, from an average 68.36 US cents/lb in October 2020 to an average 104.60 US cents/lb in September 2021.

Price volatility in spot and futures coffee markets:

During coffee year 2020/21, coffee prices experienced several spikes and high volatility (variability). The I-CIP ranged between 103.30 and 178.90 US cents/lb on a day-to-day basis and the futures price of Arabica ranged between 106.22 and 207.80 US cents/lb. The 2nd and 3rd positions average of the London futures market ranged between 56.99 and 97.11 US cents/lb, reaching its lowest point on 13 October 2020 and its highest point on 21 September 2021.

The I-CIP and Arabica futures price both reached their highest level on 26 July 2021. The average annual volatility for the I-CIP was 8.8 percent, whilst it was 11.3 percent at the New York futures. However, the group presenting the highest volatility was the Brazilian Naturals, at 11.7 percent during coffee year 2020/21 .

Figure D.2: ICO Group Indicator Daily Prices

Source: ICO Figures Compiled by Author

Figure D.3: Average of 2nd and 3rd position of ICE futures

Throughout coffee year 2020/21, arbitrage between the London and New York futures markets grew steadily from 51.56 US cents/ lb in October 2020 to 96.38 US cents/lb in September 2021. Arbitrage between the London and New York futures market for the 2020/21 coffee year was an average 74.19 US cents/lb, a 38.1 percent increase from coffee year 2019/20, where it averaged 53.73 US cents/lb. Increased pressure on the Arabica futures market due to fears of a constricted supply increased the divide between the two. The New York Board of Trade (NYBOT) certified stocks in October 2020 were at 1.30 million 60-kg bags, the lowest point in the 2020/21 coffee year. Arabica stocks gradually recovered to 2.26 million bags in September 2021, closing the coffee year on an average of 1.95 million bags for the 2020/21 coffee year. However, the London International Financial Futures and Options Exchange (LIFFE) certified stocks remained more stable throughout the coffee 2020/21 coffee year, averaging 2.37 million bags and peaking in May 2021 at 2.67 million bags.

Figure D.4: Rolling 30-day volatility of the ICO Composite Indicator Price

Figure D.5: Arbitrage between New York and London futures markets

Source: ICO Figures Compiled by Author