With the return and improvement of the European stocks, I think its important that we address the impact of the projected global deficit. The fact of the matter is, that the ECF stocks are solid right now, but how will they stand up to the deficit?
There are two different ways of looking at the ECF stocks, but both are in excellent shape. Since the ECF changed how they are reporting stocks, we saw a large increase between the 2020 levels and the 2019 levels. However, even if we "normalize" this by choosing the same starting point, and apply only 2020 percentage increases to that starting point we are still at very high levels. This is what I have called "normalized" in my chart below.
In terms of stocks we are at 14.47 mm bags as of April, thats 1 mm bags more than 1 year ago, and 2 mm bags more than we were 2 years ago when stocks were low. Moreover, stocks in Europe typically increase through at least Jun if not August, so it is likely that they will still improve.
Impact of the deficit: Europe typically consumers roughly 1/3 of the global demand for coffee. So to put some round numbers on this. If the 21/22 deficit is 10mm bags, and that is applied proportionally to Europe, that would mean a draw of 3.3 mm bags.
With current levels at 14.5mm bags, a 3.3mm bag draw would bring the stock level down to 11.2 mm bags. Below the 5 year average, and similar to 2018 levels. This does put Europe in better shape than the USA, but keep in mind that they will have to compete for coffee with a rich and hungry USA, that's not exactly a bearish combination for prices.
More importantly, this is a one-time safety net. Once Europe uses its stocks to alleviate the deficit, it will be in just as precarious a position as the rest of the world, and we will be at the mercy of the 22/23 season.