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Origin Report - The First Half of 2021

In our July origin report we take a look at the first half of the year in coffee globally, as well as looking ahead to the remainder of 2021 for Ally. Read on for a look at the C Market and the ICO’s composite price indicator for 2021 through July, updates from our green buying team, and a glance at what to expect from Ally for the rest of the year.

The World Market

C-Market Analysis

C Market candlestick chart
Source: Tradingview

The year 2021 has so far shown a significant upward trend for Arabica prices. January opened at $1.28 while June closed at $1.56, representing nearly 22% growth in the market through the first six months of the year. Noticeably bearish weeks have been regularly outpaced by several periods of substantial single- and multi-day price gains, at times as large as a nine cent single day increase. Total YTD market change as of July 12 sits as +20.08%.

These prices, which haven’t been reached since November of 2016, are being spurred on by both production and logistical pressures in various places. Brazil, one of the largest producers and exporters of Arabica coffee, is still projecting a significant decrease in their production this year following their typical biennial cycle and exacerbated by poor weather conditions. International logistics—including the ocean freight which typically ferries coffee from port to port—are strained across several industries, adding to the pressures felt by the futures market.

Global Coffee Industry Statistics

ICO Composite Price Indicator
Source: ICO Coffee Market Report, June 2021

  • The International Coffee Organization’s monthly market report indicates a composite price of 141.03 US cents/lb in June 2021, a 33.2% increase from the 105.85 US cents/lb level in October 2020.
  • This is the highest monthly average since 145.82 US cents/lb was recorded in November 2016.
  • Average composite prices through the first six months of 2020 have risen from 115.73 US cents/lb to 141.03 US cents/lb, representing nearly 22% growth similar to the change we’ve observed in the C Market.
  • Exports in May 2021 totalled 9.8 million 60 kg bags, a 10.1% drop compared to May 2020 and a 21.5% drop compared to May 2019.
  • Despite constraints on the availability of shipping containers, total exports over the first eight months of the coffee year 20/21 (Oct ‘20–May ‘21) totalled 87.3 million bags, approximately 2% increased from the same period in coffee year 19/20.
  • World consumption for coffee year 20/21 is projected up 1.9% compared to 19/20 to 167.23 million bags, still falling 1.4% below global estimated production.
  • The ICO projects that in the coming coffee year 21/22 that the supply and demand ratio will reverse, with production barely meeting demand

See the ICO’s full summary with specific figures below for more details.

In June 2021, coffee prices recorded the eighth consecutive month of increase, triggered by the expectations of reduced supply from some origins in addition to disruptions in trade flows. The monthly average of the ICO composite indicator reached 141.03 US cents/lb in June 2021, representing an increase of 33.2% from the level of 105.85 US cents/lb recorded in October 2020. This is also the highest monthly average since the level of 145.82 US Cents/lb registered in November 2016. Prices of all four groups of coffee have recorded a substantial increase. Increased activities of non-commercial speculative sector were also recorded in June 2021, as growing net long positions supported price trends upward.

In terms of market fundamentals, exports by all exporting countries to all destinations totalled 9.8 million 60-kg bags in May 2021, a drop of 10.1% compared with 10.9 million bags in May 2020. The level of total exports in May 2021 represented a 21.5% reduction of the volume recorded in May 2019, before the pandemic. The availability of containers for shipments continue to be a major constraint to trade flows. However, total exports over the first eight months of coffee year 2020/21 amounted to 87.3 million bags, compared with 85.4 million bags during the same period in coffee year 2019/20. Cumulative exports from June 2020 to May 2021 are estimated at 129.2 million bags, a relatively stable level compared with the 129.4 million bags recorded from June 2019 to May 2020. World consumption for coffee year 2020/21 is projected at 167.23 million bags, an increase of 1.9% on its level of 164.01 million bags in coffee year 2019/20. Total production for coffee year 2020/21 is estimated at 169.50 million bags, representing a 0.3% increase on 168.94 million bags in coffee year 2019/20. Although world consumption is increasing, it remains 1.4% below world production. Moreover, in coffee year 2021/22 the supply/demand ratio is expected to reverse as world production will barely meet world demand.

Burlap coffee sack with Ally Coffee logo
Ally Coffee coffee bags

A Look at Logistical Challenges in 2021

Global trade is heavily dependent on shipping containers to move goods from place to place via ship, truck, and train. With an estimated 170 million containers in circulation today, these steel boxes have revolutionized global trade since their introduction in 1956. The efficacy of this system is only as effective as the distribution of the boxes however, which is dependent on the balance of import and export for a country—the more goods you import the more empty containers you have for export. Empty containers are shipped to ports with demand for them if there's a significant imbalance of imports and exports in a country, but this situation is certainly not ideal for logistics.

The COVID-19 pandemic created a major disruption in global trade, beginning with a near-complete shutdown in international logistics followed by a significant increase in demand for consumer goods. This initial disruption was followed by the blocking of the Suez Canal in March 2021, and now the major shipping hub of Guangdong is experiencing a COVID-19 outbreak which is straining the ports further. All of these events have contributed to an unprecedented mismatch in supply and demand for containers in ports across the globe.

The coffee industry, like so many others, relies heavily on shipping container availability in order to export coffee from producing countries. Coffee shipments have experienced, and continue to experience, delays in leaving ports due to the lack of available empty containers to fill with lots of coffee. The imbalance in supply and demand has also driven prices up for logistics with freight rates now 5–10x higher than is typical. Despite these challenges, our exporting partners, green buyers, and logistics team are continuing to work to ensure that we have done everything possible to continue to ship coffee in a timely manner.

Fresh red coffee cherries in wicker baskets in Yirgacheffe, EthiopiaFreshly harvested coffee cherries in Worka Chelbesa, Yirgacheffe, Ethiopia

The Rest of 2021 for Ally Coffee

The second half of 2021 promises new offerings and returning favorites from both long term partners and new producers that we’re working with for the very first time. Even throughout the difficulties faced during the COVID-19 pandemic across the globe, our team of green buyers have been hard at work finding ways to continue growing relationships with our partners at origin. We’re also looking forward to being able to attend more in person events as a company, including trade shows like the upcoming SCA Expo in just a couple of months.

We’ve just started receiving the first lots of this year’s crop from Brazil. We expect excellent coffees this year, with shipments beginning in the coming months to all of our warehouses in the EU, MENA, US, and UK.

Following the domestic difficulties faced in Colombia during weeks of civil unrest, coffee is moving through the country again as roads and ports have reopened and containers have begun being shipped to international ports. Look forward to fresh crop coffees from Huila, Nariño, and other regions over the next handful of months.

In Central America, many of our coffees for the year are already shipped and afloat to their destinations. Returning favorites are coming in alongside new and exciting microlots, including more experimental processes from different countries. Coffees are currently expected to reach their destinations by the end of August.

Ethiopian offerings are currently on the water or waiting in port to ship. We’re excited to expand our microlot offerings this year, especially on European offer lists, and expect coffees to arrive currently by the end of September at all destinations.

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