Weekly Market Report – 10th January 2016

External factors, notably the decline in the value of the Brazilian Real and the Chinese Yuan, rather than fundamental considerations, probably played a bigger part in determining the development of coffee prices this week, although news that Colombia had a bumper crop last year certainly played a small part. Consequently it was a bad week for coffee prices with arabica coffee losing 7.6 cents/lb over the week while robust lost $55/ton (2.5 cents/lb). For Papua New Guinean coffee growers this should mean that roadside parchment prices will be approximately 33 toea per Kg lower than last week.
As Brazil is China’s largest trading partner, it is inevitable that any devaluation of the Chinese Yuan will directly impact the value of the Brazilian Real and any devaluation of the Brazilian Real ultimately undermines coffee values as it pushes up local prices to Brazilian growers. The latest data from the Colombian FNC shows that the country produced 14.2 million bags of coffee in 2015, the highest for 23 years. Colombia coffee production has grown 83% over the past four years, going from 7.7 million bags in 2012 to 14.2 million bags in 2015. Colombian coffee exports exceeded 12.7 million bags in 2015, 16% more than the 10.9 million bags exported last year. According to the ICO, world coffee exports amounted to 8.51 million bags in November 2015, compared with 8.32 million in November 2014. Exports in first two months of coffee year 2015/16 (Oct/15 to Nov/15) have fallen by 0.8% in comparison with the first two months of the last coffee year. Brazil’s exports climbed 6.9% to 3.37 million bags compared to the same month last year; Colombia saw a 9% increase to 1.1 million bags; while Vietnam’s exports fell 17% from November 2014 to 1.4 million bags. In the year ending November 2015, exports of arabica totalled 69.03 million bags compared to 69.20 million bags last year; whereas robusta exports amounted to 41.33 million bags compared to 44.57 million bags. Preliminary data from the Brazil Trade Ministry, suggests that coffee exports in December totalled 2,976,727 bags, down 2.23% from the same month last year. In Vietnam early estimates, suggest that coffee exports from the country should total between 2.17 million bags and 2.33 million bags in January. This is because exports are expected to pick up ahead of the Tet Holiday which begins in February. Also in Vietnam, dry weather should help aid in harvesting of the new crop, which is currently underway. 
Activity in the physical market last week was described as better than expected, with interest centred mainly on Vietnamese robustas and Honduran arabicas. Differentials are largely unmoved from where they were before Christmas. Brazilian 3/ 4’s remain at minus 18; as do Honduras HG’s at plus 3; Kenya FAQ’s are also virtually unmoved at plus 90/110; Colombian UGQ’s are slightly higher at plus 10/11; while PNG Y1’s remained unquoted. 
Reports suggest that there have widespread rains over all coffee growing areas of Brazil this week which look as though they will continue into next week. Rain is even reaching some of the drier robusta areas, replenishing severely depleted reservoirs, although a lot more rain will be required before the situation returns to normal. The much heralded rebalancing of the index funds did not have much of an impact this week and while many argue that this exercise will not start in earnest until next week, its’ impact may well be overblown. The fall this week was certainly unexpected and while external factors may well determine the direction coffee prices will take next week, the outlook is for prices to stabilise.