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GCA Stocks Return to Seasonal Expectations, Confirms Deficit

Updated: Aug 17, 2021

Last month the #GCAstocks, shocked to the downside when they came in below expectations at 5.78 mm bags. This month, we have a substantial stock increase to 6.07 mm bags which essentially undoes the short term fear from last month's low number, but longer term only confirms the #deficit. In the paragraphs that follow, I outline this logic, explain how to read this report and why I believe it confirms the deficit.


The #GCA #coffee stocks are published by the nonprofit Green Coffee Association which is a trade association for governing #greencoffee contracts with the #USA and her suppliers. The GCA is also one of the most useful providers of coffee #inventory figures in the world. You can receive my versions of this report by signing up here for a subscription.


GCA Stock Seasonal


The GCA stocks are USEFUL because they are TIMELY and RELEVANT.


Timely

Every month like clock-work the GCA releases their stock figures for the previous month and the entire global coffee industry pays attention. This timeliness is essential because unlike US based commodities like #cotton or #corn, there is no WASDE report that comes out with definitive figures on the global coffee industry. The GCA stocks are basically the closest thing that the market has to a globally accepted #supply figure.


The USA is not the largest #destination consumer, that would go to the #EuropeanUnion. Unfortunately, the #EuropeanCoffeeFederation has not yet developed the reputation for timely and relevant stocks that the US has.


This is not for lack of effort on the ECF's part. Due to issues with how stocks in the ECF are reported, there was reluctance on the part of members to report stocks to the ECF in a timely manner. However, the ECF has made great strides in improving this, and if that momentum can be maintained those reports could replace the GCA as the most relevant coffee stock reports.



Relevant

That said, the USA is a key destination market and very important on the global stage. Our proximity to many of the coffee origins also ensures a fairly predictable #seasonal pattern to our stocks. This seasonal pattern is essential for reading the GCA stocks intelligently and is why the last two reports have been so meaningful.


Typically we see a seasonal stock build through August as the US accepts imports from #Brazil and then there is a seasonal decline as we draw down the stock build before the next Brazil crop.




Typical Seasonal GCA Pattern


For this reason there are two numbers that we want to pay attention to, the Month on Month increase/decrease and the Year on Year increase/decrease. The month on month is important for determining whether we are deviating from the seasonal pattern, and the year on year is important for determining whether our annual supply forecasts are correct.


This is why the last two figures were so unique. Last month (the Jun figure, published in July) there was a decrease which was contrary to the seasonal increase which had some worried that we had peaked in coffee supply for the year and that forecasts would be even lower than expected.


Low stocks = more #bullish.


However, this month (the July figure, published in August) we saw a sharp increase which is much higher than a typical seasonal increase, but essentially just smooths out last month's dip.


The high numbers in this month's GCA report were a bit surprising given the logistical problems facing the coffee industry with the container shortages. These logistical problems are a major problem that the industry will be facing for some time and this could exacerbate the issue going forward.


However, a few month's ago there was a #Colombia strike that halted #shipments and since then Colombian shipments have improved, perhaps picking up some extra slack in the supply chain. This could also just be indicative of worse then expected #Demand.


While this pick-up in stocks does undo some of the urgency in the bullish story, it actually is still in line with previous expectations. As you can see from the dotted red arrow in my first graphic, we came in this month pretty much exactly where I had predicted we would be months ago.


This didn't take any particular wizardry on my part, I just applied the expected deficit to the seasonal average. So while the urgency and the fear of last month is undone, this report actually confirms what we had been projecting as a fairly significant deficit.

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