Largest coffee trader says new lockdowns slowing demand recovery

New lockdowns in Europe and the US are slowing a recovery in global coffee consumption as consumers stay away from restaurants and coffee shops, according to the world's top trader of the commodity.

Neumann Kaffee Gruppe no longer expects growth in global demand in the season that ends in September in most countries, said Ana Wilks, head of research at the Hamburg-based trader, which handles about 15 million bags of coffee a year. That compares with a more optimistic projection for an increase in consumption of 0.9% made in December.

Coffee consumption has taken a hit as the pandemic shut down cities from Paris to Los Angeles. Many countries in Europe have faced as many as three lockdown periods, with coffee shops in the UK having only recently started to allow customers to use outdoors sitting areas instead of just takeaway.

"We don't see much chance of a recovery in global coffee demand in 2020-21, especially with the return of restrictions in Europe," Wilks said in an interview. "Even as coffee demand eventually recovers with fewer restrictions, it will take a while for the recovery to show up in the coffee flows."

The spread of the coronavirus sent coffee demand down 1.5% last season, according to Neumann. Prior to the pandemic, the trader had expected consumption to grow 0.5%. Still, demand has help up pretty well compared with other commodities and beverages, Wilks said. Cocoa and gasoline consumption, for instance, both took much bigger hits.

The global coffee market will face a deficit next season as dry weather hurts output in top producer Brazil. For now, the trader expects production to fall short of consumption by 9 million bags, reversing an oversupply of 6.9 million bags in the current season, Wilks said.

But that's if demand grows at a rate of just under 2% in 2021-22. If global consumption increases by 2.5%, the coffee deficit can rise to as much as 13 million bags or be cut to 6 million bags if consumption gets flat, she said. A bag of coffee weights 60 kilograms or 132 pounds.

Growers in Brazil are expected to harvest 33 million bags of the milder-tasting arabica coffee favored by Starbucks Corp. as trees enter the lower-yielding half of a two-year cycle and dry weather hurt the crop, Neumann estimates. That compares with 38 million bags in the previous off-cycle season and 52 million bags last year.

Output of the robusta variety, used in instant coffee, is forecast at 20.5 million bags, she said.

While the forecast for Brazil's crop can still be lowered depending on weather in April, the biggest uncertainty in the market remains demand.

"Demand was always the most predictable, the most stable and easiest part of the supply and demand balance," Wilks said. "Today it's an unknown factor that can vary largely."