Weekly Market Report – 06th November 2016

As anticipated, coffee prices came under pressure during the first two days of the week as rain continued to fall throughout the coffee growing regions of Brazil. But continued buying, mainly by speculators and the Funds, spurred on by the shortage of conilons in Brazil and reports of extremely low carryover stocks, reversed the downward march and began to push prices back upwards during the latter half of the week. Arabica coffee prices finished the week 5.95 cents/lb higher while robusta gained just $1/ton (0.05 cents/lb). In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea should be 45 to 50 toea/kg higher in the week to come.

The latest trade statistics from the ICO show that world coffee exports amounted to 8.99 million bags in September 2016, compared with 8.89 million bags in September 2015. Exports in coffee year 2015/16 (Oct/15 to Sep/16) have fallen by 0.7% to 111.83 million bags compared to 112.65 million bags in the last coffee year. In the twelve months ending September 2016, exports of arabica totalled 71.02 million bags compared to 68.83 million bags last year; whereas robusta exports amounted to 40.81 million bags compared to 43.82 million bags. The latest data from the Colombian FNC shows that production has increased 3% in the past 12 months reaching 14 million bags compared to 13.6 million produced during the same period last year. Since the start of the calendar year (Jan-Oct), production has totalled 11.3 million bags, down 1% from the 11.4 million bags produced during the first 10 months of 2015. In October, production was 1.39 million bags, up 2% from the 1.36 million produced in the same month last year. In terms of exports, Colombia exported 12.39 million bags of coffee in the last 12 months, 0.7% lower than the 12.48 million bags exported during the same period last year. In the first ten months of 2016, 10.1 million bags have been exported, down 3% from the 10.4 million bags exported in the first 10 months of the 2015. LIFFE certified robusta stocks have continued to decline on the week, now totalling 13,679 lots as opposed to 13,693 lots last week and 13,716 lots the week before. Starbucks has reported that over the last financial year it has increased its global store sales by 5%. Its net revenues rose by 11% to $21.3 billion and its operating profit increased 16% to $4.2 billion.
Traders report that activity in the physical market was a little slow this week, with attention centred on African arabicas as well as on small lots of robustas from Indonesia and Vietnam. Price differentials are a little bit softer, but the situation is mixed. Brazilian 3/ 4’s are unchanged at minus 24; Honduras HG’s are slightly lower at level/plus 1; the quotes for Kenya FAQ’s have narrowed again but are essentially unmoved at plus 95/96; Colombian UGQ’s are steady at plus 9; but PNG Y1’s are lower at minus 11. 
Although currency has not really played a big part in this week’s upward surge, this could all change next week as the market starts to get the jitters about the US Presidential election. Nevertheless with the net speculative open position approaching a 10 year high, speculators clearly anticipate further life in this rally. Of course it still remains conjecture as to what the exact position in Brazil really is, although the fact that conilons continue to trade a premium to lower quality arabicas in the local market is a good indication that things are tight. Coffee prices should continue to rise, but may be undermined or exaggerated by movements in the value of the dollar following the outcome of the US election.