Weekly Market Report – 21st February 2016

With the arabica coffee market closed on Monday for President’s Day and very little fresh fundamental news, it was a relatively quiet week on both coffee markets this week. Coffee prices initially rose along with other commodities as the US dollar weakened, but fell back when the dollar rallied and the Brazilian Real weakened further. Arabica coffee prices finished the week 1.1 cents/lb lower, while robusta coffee prices lost $13/ton (0.6 cents/lb).
The Mexican Coffee Association (Amecafe) has said that the forecast of 3.3 million bags, estimated by the USDA, will not be met for the 2015/16 coffee year. Instead, due to the fall in international prices, continuing problems with the coffee leaf rust disease and excessive rainfall throughout 2015, Mexico is expected to only produce 2.216 million bags, a 41.8% decrease from the previous coffee year. In the report Amecafe concluded that coffee leaf rust had affected 80% of all coffee lands. An agreement was made with the government and coffee producers to start distributing a more resistant varietal to help avoid further damage due to the disease. The new trees should reach maximum yield in about four years. According to the latest data from the Green Coffee Association (GCA), coffee stocks in warehouses in all ports of the United States totalled 5,835,306 bags for the month ending January 31, which is 907 bags lower than the previous month. Warehouse stocks for the same month (January) totalled 5,308,000 in 2015 and 5,029,338 bags in 2014. The five year average for January GCA stocks is 5,091,003 million bags. The latest data from the US National Coffee Association, shows that coffee consumption rose 1.59% in January from the same month in the previous year to total 9,197,699,686 cups. In-home consumption, at-work consumption and restaurant consumption rose 1.08% (6.28 billion cups), 1.6% (1.9 billion cups) and 4.87% (955,205,744 cups), respectively. Single-serve continues to see major gains with a 9.59% increase, the French Press sector also saw an increase of 0.49%, while the instant and traditional drip machine sectors saw declines. However it is interesting to note that in Germany environmental concerns about coffee capsules (single serve) has provoked the City of Hamburg to ban coffee capsules from all state-run buildings in an effort to improve the city’s environmental measures. According to the report, “These portion packs cause unnecessary resource consumption and waste generation, and often contain polluting aluminium”.
Traders report that activity in the physical market remained very slow this week with what interest there was centred mainly on Vietnamese robusta and arabica from Honduras and Colombia. Price differentials remain largely unchanged, with Brazilian 3/ 4’s trading a cent lower at minus 19; while Honduras HG’s are steady at plus 4/5; Kenya FAQ’s are also unmoved at plus 88/110; Similarly Colombian UGQ’s remain at plus 12/13; while PNG Y1’s continue to be unquoted. 
The latest weather reports suggest that the next few weeks will be dry and hot in Brazil especially in Brazil’s main robusta producing regions, which have been more negatively affected by the lack of rainfall. Widespread rains is not expected to return until March, at the earliest, increasing concerns for the 2016/17 crop, which is set to begin harvesting in the next few weeks. This should provide underlying support for both markets in the week ahead and there is a good chance that prices might improve a bit, although probably not by much.