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Coffee Report Q4 2020 Main Header

Executive Summary 

  • Globally, the strong recovery in some economic sectors seems to be subsiding, partly due to the resurgence of COVID-19 cases in major economies
  • With election results now behind us, the downside risks prevail around the speedy approval of a vaccine, and the scale and scope of policy responses required over the winter
  • We believe that Biden will face a significant headwind from Republicans, stalling his plans to unwind most of the projects Donald Trump has put in place
  • Nevertheless, we expect a new stimulus package to take place, potentially enacted before his inauguration next January
  • Returning to pre-crisis levels will be challenging, and recovery paths will differ significantly between countries, especially in the vulnerable service sectors
  • China's output is already back to the pre-pandemic levels, credit is growing rapidly, and fiscal policy remains expansionary
  • Corporate earnings results have improved in Q3, however, still declined moderately year-on-year
  • Demand for at-home consumption remains strong; despite rising drive-through sales, the out-of-home demand remains muted
  • On October 30, Dunkin’s Brands has been acquired by Inspire Brands for $11.3bn
  • The producing countries have provided fiscal stimulus measures to support the recovery, however, much will depend on the spread of the COVID-19 infections and deterioration of public finances
  • We have seen the Real recover some ground since the results of vaccine, we could see more flows into riskier assets such as EM currencies
  • We have re-evaluated our COVID demand model below and continue to present two scenarios
  • For the 19/20 season demand took a hit from COVID-19, with demand dropping to 163m bags, reducing the deficit to 3.5m bags. 
  • The Chinese economy has recovered well, demand in mainland China has been a bright spot this year. China’s consumption conditions remain supportive for coffee and we expect this to continue in 2021
  • We expect the U.S. economy to recover before Europe and this will see US demand return to growth before Europe
  • Consumption trends this year have changed, we expect more relaxed office hours to increase the at-home consumption going forward
  • Consumers want more transparency and sustainable practices; farmers can reduce the impact on biodiversity and ecosystems with improved techniques. However, packaging is a huge part of being more environmental
  • Chen, Pelton, and Smith 2016, and other studies, outline that some bioplastics are more impactful than fossil plastics. This highlights the need for companies properly research materials that reduce the impact on the environment and not just adopt a material that may sound better to consumers, to improve sales
  • At this period of the crop, rains have not been beneficial, indeed, if this rain pattern continues into February, we expect there to be more damage to crop
  • Semi-washed Arabica has gained traction in recent months, as the pass rate has increased inventory levels in exchange warehouses. We expect the quality of the semi-washed coffee to start to fall in the coming months
  • It is too early to assess the damage to the Central American crop from the hurricanes
  • Brazilian shipments have not disappointed, suppressing any fears of any lack of containers or storage
  • For the 2019/20-season between October and September, exports for Central America were down 10.8% on the 2018/19 season with the 2019/20 season total shipments at 16.54m bags vs 18.34m bags for 2018/19
  • We expect the Indonesian Robusta crop to be strong in April and May, this could push pressure on Robusta prices

Global Economic Review 

Global

Regarding the global outlook, the strong recovery in some economic sectors seems to be subsiding, partly due to the resurgence of COVID-19 cases in major economies. This has the potential to significantly slow down activity in consumer-facing industries that are currently operating below capacity. There is significant uncertainty regarding economic outlook, which will depend on a couple of key factors. The stimulus bill in the US remains gridlocked, and with cases in the country on the rise, the potential for another quarter of economic recovery is limited. With election results now behind us, the downside risks prevail around the speedy approval of a vaccine, Brexit negotiations and the scale and scope of policy responses required over the winter.

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