Brazil, the world's major arabica player, accounting for around 40% of global production and more-than half of regional production, is expected to reap a record crop in the 2020/21 year commencing July. The 2020/21 Brazilian crop could be as high as 70 million 60kg bags, compared to 48 million bags in 2018/19, which was the last peak crop year of the biennial harvest rotation. However, social distancing and transportation bottlenecks look likely to disrupt the harvest process elsewhere in the region, while also restricting the flow of beanColombis to coastal export terminals in Colombia, Peru and Ecuador. The latter named countries collectively account for around one-quarter of global output and tend to sell arabica at a premium to Brazil, due to a more labour-intensive harvest process. Colombian coffee exports for April reportedly fell 32% lower year-on-year (y-o-y), supporting expectations of a thin harvest. However, a tight supply outlook for ex-Brazil producers will likely be offset by comparatively thin demand for arabica, as social isolation continues to hinder demand by global coffee franchises, the hotel and hospitality industry and other influential buyers. Hence, the premium over Brazilian arabica looks likely to erode over the next quarter.
The dollar-denominated market price of Brazilian arabica fell 11% in during the six-week period ending 6th May 2020 with global players like Starbucks and Costa remaining closed across most of the world. Conversely average spot price for Colombian arabica (CO44) has been trending upwards since the turn of the year, increasing by 13% in the four-month period ending 6th May. Mintec Analytics shows that the price premium of Colombian arabica over Brazilian product doubled during this period to US$1.0/kg. This appears to reflect the comparative tightness of Colombia supply. This differential is expected to diminish over the next quarter, as Brazil's record hits the market, giving buyers robust availability of lower-cost product, thus forcing competitor prices down. Indeed, the premium fell 11% in the week ending 13th May, as the Colombian price fell 7% w-o-w, while the Brazilian spot price fell 2%.