Weekly Market Report – 31st July 2016

It was a fairly lacklustre week until Friday when encouraging export figures from the ICO plus a weaker US dollar combined to push prices higher. Arabica coffee prices gained 4.5 cents/lb over the week but 90% of that was on Friday alone, while robusta gained $48/ton (2.2 cents/lb). This should mean that roadside parchment coffee prices in Papua New Guinea will probably be between 12 and 16 toea/kg higher in the week to come.
The latest data from the ICO showed that world coffee exports amounted to 9.03 million bags in June 2016, compared with 10.17 million in June 2015. Exports in the first nine months of coffee year 2015/16 (Oct/15 to Jun/16) have increased by 0.2% in comparison with the first nine months of the last coffee year. In the twelve months ending June 2016, exports of arabica totalled 71.16 million bags compared to 68.41 million bags last year; whereas robusta exports amounted to 41.69 million bags compared to 45.07 million bags. A new report released by Brazil-based Unicafe has pegged Brazil’s 2016/17 coffee crop at 53.6 million bags, of which 43.1 million bags are arabica and 10.5 million bags robusta. Based on this expected production figure, estimated exports from July-Dec of 17 million bags and estimated consumption from July-Dec of 10.26 million bags, Unicafe expects availability as of January 1st 2017 to total 27.473 million bags. This includes the estimated carryover stocks (not including government stocks) as of June 30th 2016 of 1.133 million bags. The latest survey from Safras & Mercado showed that as of July 26th, 70% of the 2016/17 Brazilian coffee crop has been harvested. Based on their estimate of 54.9 million bags, this would indicate that 38.27 million bags have been harvested. This is 6% higher than last week; higher than the 66% harvested by the same time last year; and close to the five-year average of 71%. According to the latest data from the US National Coffee Association, coffee consumption in America rose 0.01% in June from the same month last year to total 7,227,495,408 cups. In-home consumption fell 0.83% to 4,940,230,545 cups, while at-work consumption and restaurant consumption rose 1.76% (1,409,758,528 cups total) and 2.09% (877,506,335 cups total), respectively. Single-serve gained 3.84% while the French Press, instant and traditional sectors all saw declines. The latest data from the European Coffee Federation shows stocks in European warehouses rose 17,892 metric tons in May from the previous month, to total 724,682 metric tons.
Traders report that activity in the physical market was quiet this week, with interest centred on arabica from Colombia, Guatemala and PNG . Differentials have hardened slightly, but the situation is mixed. Brazilian 3/ 4’s are higher minus 24; but Honduras HG’s are steady at plus 3; as are Kenya FAQ’s at plus 95/98; while Colombian UGQ’s are slightly lower at plus 9. PNG Y1’s are also lower at minus 12. 
In many ways it was a strange week in that all the news was relatively bearish, yet neither market showed any real reaction until Friday. This bodes well for next week, as it is fairly obvious that the market has now adjusted to the emerging tighter supply demand balance reality with prices now trading within a higher range than they did even just a few weeks ago. However with Europe and the USA entering the holiday season and the Olympics taking place in Brazil, trading volumes will be thinner, which might mean increased volatility. Prices should continue their upward journey next week, but any increase will not be large.