Coffee Year 2014-15 Futures Trading Analysis

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Lower coffee exports lend support to Robusta prices The coffee market rallied slightly in June, led in most part by a recovery in Robusta prices. For the sixth month in a row exports were lower than last year, yet the market seems to have no immediate supply concerns, particularly as recent reports suggest an optimistic view of coffee production. The continued weakness of the real is also affecting prices, with the new 2015/16 crop expected to come to market in the near future. Nevertheless, in the longer term, the low prices recorded over the last quarter, though not yet reaching crisis levels, will not encourage investment in the sector, and could result in reduced supply as producers withdraw from the market. Graph 1: ICO composite indicator daily prices 200 180 160 140 120 80 The daily price of the ICO composite indicator ranged from a high of 127.83 cents/lb to a low of 122.05 cents over the course of June, with the monthly average settling on 124.97 cents, 1.2% higher than May. However, this is still the second-lowest monthly average in the 17 months, with further depreciation of the real keeping prices depressed. This bearish market sentiment was exacerbated by the release of the US Department of Agriculture s biannual coffee report, which forecast a significant surplus of 5 million bags in 2015/16, on top of a slight surplus of 290,000 bags in 2014/15.

Graph 2: ICO group indicator daily prices 250 200 150 50 Looking at the group indicators shows a slightly different dynamic. The three Arabica groups all recorded minor increases month-on-month, with, and up 1.2%, 0.8% and 0.1% respectively., on the other hand, rose by 3.1%, which can be attributed to concerns over availability as supply from Vietnam continues to be limited. Exports from Vietnam were estimated significantly lower in May compared to last year, down 40.4% on 1.5 million bags. It is difficult at this point to tell if these lower export volumes are due to reduced production or the accumulation of stocks, but this should become clearer towards the end of the coffee year. Graph 3: Arbitrage between New York and London futures markets Graph 4: Rolling 30-day volatility of the ICO composite indicator price 140 20% 120 15% 80 60 40 Volatility (%) 10% 5% 20 0% 2 Coffee Market Report June 2015

As a result, the arbitrage between Arabica and Robusta on the New York and London futures markets narrowed in June by 2.8% to just 55.61 cents, the lowest since January 2014. This could potentially encourage roasters to adjust their blends to increase the proportion of Arabica coffee. Physical prices of (mostly washed Arabicas from Central America) continue to trade above, due to the difference in availability of the two. Total exports in May 2015 are estimated at 9.3 million bags, 12% lower than May 2014. This is mostly due to the lower shipments from Vietnam, which are estimated down by nearly 1 million bags, as well as slightly reduced volumes from Brazil and Indonesia. So far in coffee year 2014/15 (October to May), exports came to 72.3 million bags, 4.6% less than the 75.8 million bags shipped in 2013/14, with the only group registering an increase. In terms of the fundamentals, world production for crop year 2014/15 is currently estimated at some 141.9 million bags, significantly less than world consumption, which is estimated at 149.3 million bags in calendar year 2014. Finally, certified stocks of Arabica on the New York exchange climbed slightly in June to 2.4 million bags, but remain at relatively low levels. Robusta stocks on the London market, on the other hand, have been rapidly reconstituted over the last 15 months, from a low of just 274,000 bags in April 2014 to 3.1 million bags in June 2015. Graph 5: Certified stocks on the New York and London futures markets 3 Million bags 2 1 0 London New York 2015 International Coffee Organization (www.ico.org) Coffee Market Report June 2015 3

Table 1: ICO indicator prices and futures prices () ICO Composite New York* London* Monthly averages Jun-14 151.92 195.17 197.89 165.34 98.91 175.81 89.40 Jul-14 152.50 194.21 196.90 164.92 101.79 175.74 91.83 Aug-14 163.08 211.60 212.97 183.32.25 193.98 90.64 Sep-14 161.79 206.78 210.53 182.15.52 192.09 91.24 Oct-14 172.88 222.59 225.29 197.05 104.70 210.12 95.51 Nov-14 162.17 206.41 209.38 181.43 103.06 192.33 93.60 Dec-14 150.66 190.16 193.60 166.58 98.43 177.82 89.86 Jan-15 148.24 185.26 190.00 163.50 98.01 173.19 89.33 Feb-15 141.10 174.11 178.89 151.90 98.36 159.55 89.76 Mar-15 127.04 154.29 160.74 133.55 92.16 139.70 82.94 Apr-15 129.02 157.06 164.00 136.70 92.06 141.79 82.71 May-15 123.49 150.19 158.48 130.38 87.56 135.22 78.03 Jun-15 124.97 152.02 159.76 130.51 90.25 135.86 80.25 % change between Jun-15 and May-15 1.2% 1.2% 0.8% 0.1% 3.1% 0.5% 2.8% Volatility (%) May-15 6.9 7.5 7.4 8.5 6.2 8.9 7.5 Jun-15 7.1 7.5 6.8 8.9 6.0 8.3 6.2 Variation between Jun-15 and May-15 0.2 0.0-0.6 0.4-0.1-0.6-1.4 * Average price for 2 nd and 3 rd positions Table 2: Price differentials () New York* London* Jun-14-2.72 29.83 96.26 32.55 98.98 66.43 86.41 Jul-14-2.69 29.29 92.42 31.98 95.11 63.13 83.91 Aug-14-1.37 28.28 111.35 29.65 112.72 83.07 103.34 Sep-14-3.75 24.63 106.26 28.38 110.01 81.63.85 Oct-14-2.70 25.54 117.89 28.24 120.59 92.35 114.61 Nov-14-2.97 24.98 103.35 27.95 106.32 78.37 98.73 Dec-14-3.44 23.58 91.73 27.02 95.17 68.15 87.96 Jan-15-4.74 21.76 87.25 26.50 91.99 65.49 83.86 Feb-15-4.78 22.21 75.75 26.99 80.53 53.54 69.79 Mar-15-6.45 20.74 62.13 27.19 68.58 41.39 56.76 Apr-15-6.94 20.36 65.00 27.30 71.94 44.64 59.08 May-15-8.29 19.81 62.63 28.10 70.92 42.82 57.19 Jun-15-7.74 21.51 61.77 29.25 69.51 40.26 55.61 % change between Jun-15 and May-15-6.6% 8.6% -1.4% 4.1% -2.0% -6.0% -2.8% * Average price for 2 nd and 3 rd positions 4 Coffee Market Report June 2015

Table 3: Total production in exporting countries Crop year commencing 2011 2012 2013 2014 % change 2013-14 TOTAL 136 583 147 562 146 745 141 850-3.3% Arabicas 82 007 88 264 87 116 84 638-2.8% 8 720 11 523 13 488 14 020 3.9% 31 965 28 828 26 891 27 131 0.9% 41 322 47 913 46 737 43 488-7.0% 54 576 59 298 59 630 57 212-4.1% Africa 16 070 16 702 16 108 16 860 4.7% Asia & Oceania 41 918 45 355 46 744 44 334-5.2% Mexico & Central America 20 194 18 381 16 661 17 963 7.8% South America 58 401 67 125 67 233 62 693-6.8% Full production data are available on the ICO website at www.ico.org/trade_statistics.asp Table 4: Total exports by exporting countries May 2014 May 2015 % change October - May Full trade statistics are available on the ICO website at www.ico.org/trade_statistics.asp 2013/14 2014/15 % change TOTAL 10 542 9 277-12.0% 75 785 72 311-4.6% Arabicas 6 330 6 049-4.4% 46 657 44 973-3.6% 914 1 120 22.5% 8 316 8 768 5.4% 2 501 2 450-2.0% 15 358 14 442-6.0% 2 915 2 480-14.9% 22 984 21 763-5.3% 4 212 3 228-23.4% 29 127 27 338-6.1% Table 5: Certified stocks on the New York and London futures markets Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 New York 2.83 2.79 2.71 2.68 2.67 2.63 2.60 2.55 2.56 2.60 2.56 2.41 2.43 London 1.12 1.28 1.41 1.88 2.02 2.08 2.12 2.35 2.55 2.84 2.93 3.02 3.12 In million bags Table 6: World coffee consumption Calendar years 2011 2012 2013 2014 CAGR (2011-2014) World total 139 415 143 004 147 339 149 265 2.3% Exporting countries 42 794 44 222 44 992 46 201 2.6% Traditional markets 75 910 76 509 79 026 79 387 1.5% Emerging markets 20 711 22 273 23 320 23 677 4.6% CAGR: Compound Annual Growth Rate Full consumption statistics are available on the ICO website at www.ico.org/trade_statistics.asp Coffee Market Report June 2015 5