Weekly Market Report – 25th September 2016

A more bullish supply outlook plus macro-economic factors (namely the US federal Reserve’s decision not to increase interest rates and the announcement by the new Brazilian President that he was committed towards an economic recovery for the country),

combined this week to boost coffee prices to an 18 month high, but profit taking over the latter part of the week took coffee prices off the highs. Nevertheless arabica coffee prices finished the week 5.2 cents/lb higher than they were at the beginning while robusta coffee prices managed to move ahead by $29/ton (1.3 cents/lb). This should mean that roadside parchment coffee prices in Papua New Guinea will probably be about 35 toea higher in the week to come.

The bullish tone was sparked off this week by news that rains in Brazil would continue to be erratic until at least mid-November plus the release of a new estimate of Brazilian output by CONAB. The third and final coffee crop estimate from Brazil’s National Supply Company (CONAB) released this week, put the 2016/17 (April 2016/March 2017) crop at 49.64 million bags, up 14.8% from the previous crop. Arabica coffee was estimated to total 41.29 million bags, or 83.2% of total coffee production. Robusta production is put at 8.35 million bags, down 25.3% from the previous crop and representing 16.8% of total production. In addition following last week’s release of their second estimate of the 2015/16 global coffee balance, FO Licht have, this week, published their first estimate of global coffee production for the 2016/17 coffee year at 152.9 million bags. Arabica production is estimated to be 95.2 million bags, up from the 88.8 million bags in 2015/16 and robusta production at 57.7 million bags, down from the 62.4 million bags produced last year. African coffee production in Africa is seen rising to nearly 17.0 million bags from 16.4 million last year, while North & Central American coffee production is expected to rise to 17.7 million bags from 16.9 million bags. Coffee production in South America is seen rising to 73.4 million bags in 2016/17 from 69.8 million last year due to higher output in Brazil, where production is estimated at 54.8 million bags up from 50.6 million bags. Asian coffee production is expected to fall to 44.0 million bags from 47.3 million bags last year. 
Activity in the physical market continues to pick up after the summer holidays but some traders report that it is still slow for this time of the year. Interest continues to be centred on Vietnamese robusta and Colombian arabicas. Price differentials continue to erode slightly but the situation is mixed. Brazilian 3/ 4’s are down a cent at minus 25; but Honduras HG’s are steady at plus 1; as are Kenya FAQ’s at plus 88/90; Colombian UGQ’s are also unmoved at plus 9; while PNG Y1’s also continue unchanged at minus 13. 
In their latest report, Commerzbank raised its forecast for arabica futures by up to 10 cents/lb, seeing prices average at 135 cents/lb in the 4th quarter of 2016 and 130 cents/lb in the 1st quarter of 2017. For robusta coffee, the bank raised their forecast by up to $150/ton, seeing an average of $1850/ton in the 4th quarter of 2016. It should be noted however that while the bank has raised their price forecasts, they are still well below current prices. The report noted that weakness in the Brazilian Real and a strong Brazilian arabica harvest in 2016/17 will keep pressure on the market. The immediate outlook however remains positive and although prices were falling towards the end of last week there is a good chance that they will stabilise this week and may even continue their upwards march, albeit at a slower rate .