Carlos Mera Arzeno –Senior Commodities Analyst - Rabobank+44 20 7664 9512carlos.mera@rabobank.com

Rabobank - Agri Commodity Markets Research

Marketing CommunicationLow Prices - Causes and Consequences

Source: Bloomberg, Rabobank

Price changes 01/Nov/2018 - 01/Nov/2019

-40% -20% 0% 20% 40% 60%

ICE RobustaICE ArabicaICE CottonBrent CrudeICE No. 11 SugarCBOT WheatICE White SugarMatif WheatCBOT Soybean MealCBOT CornS&P GS Ag IndexCBOT SoybeansCBOT Soybean OilMDE-Bursa Palm OilCME Lean HogsICE NY CocoaICE London Cocoa

Source: Bloomberg, Rabobank

Price changes 01/Nov/2018 - 01/Nov/2019

-20% -15% -10% -5% 0% 5% 10% 15%

USDUAH CurncyUSDIDR CurncyUSDMXN CurncyUSDINR CurncyUSDRUB CurncyS&P GS Ag IndexUSDVND CurncyUSDMYR CurncyUSDGBP CurncyDXY INDEXUSDCNY CurncyUSDEUR CurncyUSDAUD CurncyUSDCOP CurncyUSDBRL Curncy

Currencies will likely continue to influence commodity prices

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CNY and VND commoved a lot in the past and VND could see a

depreciation

# Winning# MAGA

Changes in Brazilian exports dwarf the variations in any other country

3Source: ICO, Cecafe, GSO, Rabobank 2019

Clear overproduction problem:

Policies should be aimed at reducing overproduction

Brazil situation

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• Rabobank stock survey: finds 1.9m bags higher 18/19 arabica crop, to 45.9m bags

• Quality problems in the 2019 harvest, but masked by large old crop availability. Semi washed production dropped by almost 50% YOY.

2020/21 Outlook:• It has been dry in arabica areas! Water availability is an issue in some areas.

• Some problems: Little frost and first flowering (largely lost)

• Gigantic main flowering could result in excellent quantity and quality in 20/21..

• Rate of pruning was higher during the harvest, but probably lower afterthe main flowering

• Rondônia has seen extreme temperatures for this time of the year, which could have impacted production there.

• Glyphosate concerns in Europe. Source: Rabobank 2019

Arabica in BRL/lb

Forecast has been for wet weather since late Sep, but actual rainfall levels have been consistently lower.

Source: Somar, NOAA, Rabobank 2019

2016/17: 54m bags2017/18: 49.2m bags2018/19: 62.5m bags2019/20: 57.6m bags2020/21: 66.7m bags

Source: Rabobank 2019

A lot of coffee to come from Brazil, again

Colombia looks stable at just under 14m bags

Colombian crop looks rather steady, just below 14m bags

Source: FNC, local newspaper, Rabobank 2019

8Source: IHCAFE, Rabobank 2019

Introducing a higher margin of error than usual

Central America is under pressure from low prices - 2019/20

? ?

Scary stories…

9Source: IHCAFE, Rabobank 2019

Vietnam

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2018/19: We still sustain a view of a crop of record level or at least very large, but stock piling was an issue. An increase in internal stocks is to be expected given a low market.

Vietnam (and India) differentials reached record high, posing a new risk to the trade.

2019/20: Rainfall reported below normal, but weather maps showed good cloud cover. We could potentially see another record.

Indonesia however looks on the dry side.

Source: Bloomberg, Rabobank 2019

Vietnam differential

Net Imports

11Source: customs data, GCA, Rabobank 2019

Trackable coffee from customs data – adjusted by stock data in the US and Japan: Excellent consumption in non-producing countries, except in Japan.

Even scarier

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Global exports from origin increased by approximately 8m bags higher YOY (Oct-Sep), largely because of Brazil

Trackable stocks in destination countries increased by 2.6m bags (total coffee).

Trackable disappearance into non-producing countries are up 3.6m bags YOY (12m to to June 2019).

Where is the rest?

Source: Rabobank 2019

Brazil exported a lot to other producers

13Source: Customs data, Rabobank 2019

Non-producing countries

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5-year change in net imports - in 000’ bags

Source: Official customs statistics, Rabobank 2019. Estimates as of July 2019

EU=2,501

Google trends: demand is doing well

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Searches for

‘coffee’ worldwide:

‘cold brew’ worldwide

‘Specialty coffee’ worldwide

2015 2016 2017 2018 2019Source: Google trends, Rabobank 2019

Supply/Demand2020/21 likely a small surplus. It will largely depend on demand, prices, mild production drop and Brazil weather

16Source: Rabobank 2019

Certified stocks

17Source: ICE, Rabobank 2019

Million dollar questions:- How much more conilons will be certified?- how much will certified arabica stocks fall. 0.5m bags? 1m bags? A 0.5m bag fall correlates to a 12 cent increase in arabicas

Funds were getting very short across agricommodities – not anymore

18Source: Bloomberg, Rabobank 2019.

Non-Commercials in coffee remain short, but well below record levels

19Source: Bloomberg, Rabobank 2019.

..as is expected in off-cycles. In case of a depreciation of the BRL they could get shorter.

But are they making money?

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A little bit more than usual lately, mainly on US-China trade war

Source: Bloomberg, Rabobank. September 2019

Forecast: slightly bullish, amid a volatile environment

21Source: Bloomberg, Rabobank 2019

• Demand is doing well

• Weather: delayed harvest risk in C America and Vietnam; dryness in Brazil

• Central America & Ethiopia will be wild cards

• Lack of good quality Brazil arabica, combined with lower availability from Central America, Peru, and possibly Ethiopia should provide a lot of support for milds, especially as certified stocks decline. We tend to believe the market will see futures support as opposed to only differential.

• A supported BRL in case of a phase one trade deal.

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