RGC Coffee Monthly Market Report - August 2020



Dear Friends,


We, like many of you, are trying to study and forecast consumption, re-openings, and the impact of COVID on consumption.

 

Consumption

The greatest unknowns remain the impact of the pandemic on consumption (in home vs. out of home) and the difficulties in projecting needs for fall and winter consumption. We know that out of home was sharply hurt the past months and this sector of the industry uses a good amount of washed Milds.

We strongly believe that this sector of the consumer market will still be in recession and demand will remain reduced due to the lingering effects of the pandemic. Our experience shows us that roasters, when faced with an uphill battle to recover market share, will turn more aggressive in pricing, thus slowly increasing the proportion of unwashed arabicas in their blend and shying away from high premium washed coffees such as from Guatemala and Colombia.

NCA just published some interesting statistics for consumption during Q1 and Q2 2020 with comparison figures for the same period during 2019. Let us keep in mind that in-home drinking represents about 70% of total consumption. In-home usage during Q1 2020 shows an increase of 7.5% versus Q1 2019 while out of home consumption dropped an average of 11% versus Q1 2019, with a net result showing an increase in consumption of 1.8%. The figures for Q2 are quite interesting as they show the full-blown impact of the pandemic. In-home usage increased by 22.6% while OOH dropped a whopping average of 48%. The net result shows a decrease of 0.70% versus Q2 2019.

In summary, Q1’s increase is below the expected non-COVID projection of 2.5% to 3.0%, but it increased by less showing the early effect of the pandemic. Q2 usage decreased in the market. Overall, US consumption will show a flat or tepid increase during 2020. World usage will most probably show a net decline in consumption during 2020 versus 2019. With USDA projecting 20/21 world production at 176 million bags and consumption at 166 million bags, this will increase the surplus of 10 million bags by a few million bags.

The concern for OOH consumption derives from reports that up to 60% of restaurants that closed during the pandemic will remain permanently closed. The majority being small or mom and pop restaurants. Other reports show that consumption was most affected in emerging markets, however accurate statistics are almost impossible to obtain.
 

Colombia


The Mitaca crop ended and the flow of coffee today is slowing down. Many exporters were thankfully able to catch up on their shorts after the abrupt end of the previous main crop in January 2020. They paid continuously escalating premiums for green. We feel some still carry some shorts on their books that they will push to September to coincide with the new main crop. Some tightness exists now in between harvests, but the worst is behind us. The main crop looks good from both a quality and volume perspective, therefore everyone anticipates lower differentials for 2021.

 


Latin America / Milds 


Peru is still in full harvest, all other crops are harvested and exported, and the Mitaca in Colombia finished harvesting but they are still milling pergamino for exports. The next 20/21 crop of these Latam milds is estimated to remain unchanged from the 19/20 volumes produced. However, there are concerns about the movement of labor and strict measures by local governments that could negatively impact the picking for the coming harvest. The pandemic created difficulties for many of these origins specially among the farmworkers who are at the bottom of the pecking order.





Be well and be safe,
Ron Gabbay

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