Lowest European Stocks Since 1998 Despite Strong Exports: a contradictory sign

Recently, coffee prices have surged, with the London Robusta market hitting all-time highs, impacting the Arabica market positively. This trend has led to a tightening arbitrage, contrary to the typical widening observed during price advances. Historically, when the Arabica market faces issues like Brazilian frost, Robusta prices tend to lag due to larger supplies, widening the arbitrage. However, the current scenario is different, suggesting a shift in market dynamics.

European stocks hit their lowest levels since 1998, standing at only 6.696 million bags in February, down from 11.858 million bags a year ago. Several factors contributed to this decline, including climbing freight rates, delayed deliveries, strong differentials deterring new purchases, and high interest rates making inventory maintenance expensive. Moreover, reduced export volumes over the past two years due to smaller crops from major coffee-producing countries further depleted these stocks.

Despite lower Robusta exports last month, cumulative exports since October have increased, surpassing Brazilian Natural cumulative exports. However, there's a lag between reported exports and delivery into warehouses, and the hefty exports reported this season imply that some of this coffee will eventually show up in warehouses. Overall, while the market experiences robust export volumes, European stocks dwindle, posing challenges and raising questions about future supply dynamics.

Source: Taka Insights