Sea Change in the Cert Stocks

Over the last month #certifiedstocks in #Arabica #Coffee dropped 120k bags, 33,000 of which happened on October 5th. This is a bellwether of stock declines to come across destination markets over the next several months.

A few weeks ago I wrote about how the Certified Stocks in Arabica had changed with the addition of the semi-washed #Brazils to the contract. In that post I argued that the addition of Brazils to the contract enabled the certs to better represent the global Arabica #coffeemarket, but it required a ramp-up period where Brazils were tendered to the exchange.

During this period from October 20020 through July of 2021 Brazils added 1.1 million bags of certified coffee, essentially doubling the global supply. Since #Brazil produces ~45% of the global supply of Arabica this also brought the Arabica cert stocks more in line with proportional #supply. In other words, the Arabica certs now better represent the global supply of Arabica then they ever have.

However, during this ramp-up period the traditional inverse relationship between certs and C market prices broke down. Instead, prices rallied on the global #deficit and Brazil weather issues at the same time that cert stocks continued their rapid increase.

Now that ramp up is completed, and the market should be looking to certified stocks and #destinationstocks again as an indicator of global supply. Looking forward, we have seen dramatic decreases in exports due to 1) #logistical bottlenecks and 2) high #differentials at #origin. For these two reasons it is making more and more economical sense to stop certified coffee and roast or sell it.

The #GCA stocks follows a clear seasonal pattern that typically sees draw down in the months following the exportation of the Brazil harvest. Last month (Aug 2020) the stocks defied that pattern and actually increased for an extra month. However, we can clearly see from the exports that that increase is unlikely to continue.

With the Christmas season (and the ensuing consumption) upon us, it seems likely that logistical concerns would continue globally and with the present shortage in production the world will need to look to stocks to satisfy the deficit. The cert stocks rapid change in direction seem to indicate that that shift is occurring.