Fitch Solutions lifted its forecast for arabica coffee prices, but to levels below the futures curve, foreseeing values struggling later this year to counter a rebuild in exchange stocks, threats to demand from economic downturn.

The analysis group raised by 5 cents to 215 cents a pound its forecast for average New York arabica coffee futures prices in 2022, on a second-contract basis, citing “greater-than-expected price support” in the first half of the year.

Futures, on a second contract basis, in February touched a 10-year high 260.45 cents a pound and, bar two sessions in mid-July, have remained above 200 cents ever since.

Price fall ahead?

However, the forecast factors in an expectation of “an average price for the remainder of 2022 of close to 200.00 cents a pound” which is below the level investors are factoring in.

The December arabica contract stood on Tuesday at 220.40 cents a pound, with the futures curve staying above 200 cents out to the last contract currently live, for July 2025.

According to Bloomberg, the market consensus is for prices to average 220 cents a pound this year.

For 2023, Fitch’s held its forecast at 190 cents a pound, also below the futures curve, although above a Bloomberg consensus figure of 185 cents a pound.

‘Inventories will remain depressed’

The analysis group said that for the short-term, prices would retain a prop from the low level of inventories of coffee passed for delivery against New York ICE futures.

As of Monday, certified stocks stood at 571,580 bags, down by nearly 1.0m bags for 2022 so far, and the lowest since June 1999.

“We highlight that inventories will remain depressed until deliveries from Brazil’s 2022-23 crop, which will be harvested until end-September, arrive to market in significant volume and thus low inventories will continue to provide support to the coffee price in the near term.”

Certified stocks of Brazilian beans have plunged by more than 80% so far this year, to 130,452 bags, although they did show a rare rise on Monday, of 425 bags.

Fitch attributed the stocks drawdown to shipping hiccups which “have disrupted the delivery of stocks to ICE warehouses and, secondly, an increased demand for stock purchases caused by elevated coffee prices.

“Inventoried coffee stocks accumulate a discount over time and thus can represent an economic alternative to market purchases when prices are high.”

‘Start to weigh’

However, later this year, Fitch forecast “an improvement in supply-side conditions” coming to bear.

“In sum, we see global coffee production rising by 4.1% in 2022-23 to start to weigh on prices,” at a time of demand challenges too.

“We anticipate a widespread tightening of monetary policy, in the face of broad-based price inflation, and weaker global economic growth, which will both weigh on consumer sentiment and result in reduced household spending on coffee and coffee-based products.”

“In addition, barring another outbreak of the Covid-19 virus, we expect the continued unwinding of Covid-era logistical bottlenecks and logjams to further loosen the global coffee market.”