1. Short Coffee
GIC Agriculture and Softs
Mateusz Borowiecki, Andrew Charlton, Will Marchionni, Ren Yi

2. General Overview
• Supply Concerns
• Brazil
• Vietnam
• Colombia
• Demand Concerns
• US
• EU
• Developing World
• Existing Stocks
• ETF Information
• Risks and Conclusion

3. Historic Prices

4. Supply Overview
• Coffee mainly produced in three
nations:
• Brazil (34.3%)
• Vietnam (18.7%)
• Colombia (8.5%)
• Harvested from small bush or tree
which takes several years to mature
• Land used for coffee cultivation
cannot easily be used for other
crops
• Consequence: supply is very
inelastic in the short run

5. Arabica and Robusta
• Two main species of coffee plant
grown commercially
• Robusta has greater yields and is
lower maintenance, making it
cheaper
• However, Robusta generally
considered lower quality due to
taste
• Consequently, ~75% of world
coffee production is Arabica

6. Arabica and Robusta

7. • Agrimoney reports that
“favourable” weather could help
rebound Arabica supply to record
heights this year
• First estimate: 49.1m-51.9m bags
• Second highest: 49.2m
• Area increase (2.9%); since 2011,
number of trees increased by ~4%,
mainly in 2011-12
• Slight increase in Robusta (11.4m-
12.1m)
Supply in Brazil

8. Supply in Brazil

9. Supply in Vietnam
• Only 6% of supply sold
domestically
• Coffee production a central part of
government’s development policy
• Expected water shortages may
affect Robusta harvest; similar to
drought in 2014-15
• Some analysts predict Vietnamese
farmers will sell crop from past
year to get through year,
maintaining supply

10. Supply in Vietnam

11. Supply in Colombia
• Average annual coffee production
of 11.5 million bags is the third
total highest in the world
• highest in terms of the Arabica bean
• regional climate change caused
production to decline between 2006
and 2012
• Since 2012, continued growth is
expected following 7 years
• an aggressive tree renovation
program
• an increase in organic production

12. Demand Overview
• Coffee mainly consumed in developed world
• European Union (29.7%)
• United States (16.0%)
• Demand growing but insignificant in developing world
• Ethiopia (2.0%) and Algeria (1.5%) consume more coffee than all
of China (1.2%) and India (0.8%)
• Premium coffees growing, but cheap generics still dominate
market

13. Demand in European Union
• Largest consumer of coffee in
the world (~30%)
• Demand projected to increase
by 400,000 bags (+0.89%)
• Not enough increase in demand
to offset rise in supply
• Continued economic weakness
puts downward pressure on
coffee demand

14. Demand in European Union

15. Demand in European Union
• Jan 2016: Ban on coffee pods
in Hamburg spurring doubt
over future success in Germany
as well as other eco-friendly
markets
• Pod sales of $1.2B in 2015, or
25% of total coffee sales
• Category was projected to grow
to $1.6B by 2020

16. Demand in United States
• Second largest market for coffee
• Demand for premium coffee products soaring,
especially among millennials
• According to Nielsen Data: premium has seen
growth from 16% of market to 18%
• Market still dominated by generic, private
consumption
• Maxwell House and Folgers have seen almost
no growth in sales (~1% and ~0%
respectively)
• At end of 2015, household consumption only
increased 1%YoY

17. Demand in Developing Nations
• Markets dominated by instant coffee
(~99% by volume in China)
• Total consumption growth per annum in
China has hovered around 15%
• Tea still dominates in both China and
India; coffee most popular among
emerging middle class
• India is a net exporter; China also
produces some coffee but is a net
importer
• Massive potential in future, but
insignificant over next several years

18. Stocks
• Stocks projected to increase
overall in coming year
• In past, stocks have been
correlated with prices

19. ETF: JO
• Current price: $19.30 at close on 15 March
• Fund run by Bloomberg since 2009
• Average volume over 3 months: 113,877
• Down ~11% YTD; currently rallying

20. ETF: JO

21. Risks and Conclusion
• Coffee requires lots of water—poor rainfall in major
producers could act as a major shock to supply
• Relatively low stocks may spur growing prices
• Current prices near historic lows already
• Timeline: ~6 months
• Will require updates
• Target price: $15.75