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Coffee futures spiked big in recent months mainly on back of the news that Brazil's production could fall. The following comes from the International Coffee Organization's Monthly Report, located here:

"Much of the recent price support has been due to speculation over the size of the upcoming Brazilian crop. The first estimate by Conab of the 2014/15 crop gives a forecast of 46.53 to 50.15 million bags, with an average of 48.34 million. If realised, this average would represent two consecutive decreases in Brazilian coffee production for the first time since 1977, and would suggest that the significance of the traditional biennial cycle of production is waning. The expected decrease is attributed to a reduction in the area of production, as well as lower levels of crop investment caused by falling coffee prices. Furthermore, particularly dry weather in January in several coffee-growing regions in Brazil has been seen as detrimental to the development of the 2014/15 harvest, supporting coffee prices over the course of the month."

For those not in the know, Brazil's production pretty much drives prices globally. Historically, Brazil's crop was subject to biennial cycles. In a nutshell this means the plants produce a lot one year and then less the next year because it takes time for the plants to recover and produce as much. So the biennial cycle was on one year and off the next (more production one year less the next). But in recent years the production amounts have converged due to technological advances. The chart at the bottom of page 3 of this report shows the changes.

As best we can tell, the market started to believe technology was removing concerns that crop production could fall and now that estimates are falling and biennial cycles are disappearing crop yield predictability is becoming difficult. Stack on the recent drought in Brazil leading to more production problems, and up go the prices.

Global production is currently estimated to be 145.8 million bags. Consumption for 2009-2012 according to the ICO was as follows (million bags): 132, 136, 139, and 142 for an average annual growth rate of +2.4%. Multiply that times the 2012 142 million and you get 145.5 million bags for 2013…neck and neck with production. These numbers are always changing but the bigger point is global production and consumption are pretty tight. But that is only the current supply/demand picture.

Coffee consumption in the emerging markets is a fraction of consumption in more developed markets. Again, according to ICO, emerging markets account for 19% of global consumption. Further the EM average annual growth rate from 2009 to 2012 was +5% (compared to +2.4% for the world and +1% for traditional markets).

But the EM category doesn't even include China and India. According to this ICO study, China consumed between 1.1 and 1.6 million bags in 2012. According to the August 2013 ICO report, India consumed 1.9 million bags. The USA consumed 22 million bags. China has 1.3 billion people and India has 1.1 billion while the US has 300 million. It doesn't take a supercomputer to figure out if coffee catches on in Asia anywhere near the way it has in America the supply demand equation is going to spell big trouble for coffee bears.

And it does appear to be catching on. Various news articles indicate a large group of Western educated/employed Asians are returning to their countries post degree/job with a Western style appetite for coffee. This is supported by Starbucks' (NASDAQ:SBUX) recent earnings release which said that comps in China/Asia Pacific (CAP) were up +8% (compared to +5% in other regions). The report also shows that Starbucks opened 209 net new stores in CAP in the 12/29/13 quarter compared to 64 in EMEA and 142 in the Americas. As of 9/29/13 SBUX had 13.4k stores in the Americas, 1.9k in EMEA, and 3.8k in CAP. Again the store potential looking at relative populations is huge. The executives at Starbucks can certainly read, with CAP comps almost double that in the rest of the world and drastically lower per capita consumption rates that are on the rise we imagine they will keep expanding eastward in search of profits.

The future is uncertain but looking beyond the near-term Brazilian production concerns, it is hard to envision a world in ten or twenty years where coffee demand doesn't exceed supply unless drastic increases come from the supply side.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.