Weekly Market Report – 30 June 2019

Damage reportedly caused by cold temperatures last week in Brazil plus the threat of colder weather this week has forced the arabica market sharply upwards. There have also been reports that the size of coffee beans currently being harvested in Brazil are smaller than expected thus causing some to revise their estimates of the crop lower. Arabica coffee prices gained 8.80 cents/lb over the week while robusta, almost begrudgingly, put on $37/ton (1.65 cents/lb). In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea over the week to come will probably be around 60 toea per kg higher than they were last week.

Most of the weather forecasters, while suggesting that temperatures will plummet this week in Brazil, are shying away from forecasting a frost. However, market traders are very nervous given that the last frost was in 1994, some 15 years ago and the forecasts are all suggesting temperatures will be dropping very close to freezing. Furthermore, a study of sunspot activity suggests that conditions during 2019 and 2020 are similar to those prevailing in 1975 when a widespread frost destroyed almost two thirds of the Brazilian crop. Nevertheless, the situation is not the same as in 1975 for coffee production has moved further north in Brazil and out of the potential frost zone. Even so a serious frost has the potential to affect as much as 25% of the area planted to coffee, so it would be devastating for the industry. Last week’s cold temperature has, according to reports, caused damage to the leaves of many trees and will have some effect on next year’s crop, although overall the effect on total production is likely to be very small. Reports suggest that around 85% of the robusta harvest in Brazil is now complete while the arabica harvest is progressing apace with the harvest in Parana now 59% complete. It is somewhat of a surprise that the robusta market did not gain anywhere near as much as the arabica market. There appear to be a number of reasons for this, but there is no doubt that the overwhelming presence of conillon in the stocks certified against the London market is distorting the way the market currently operates. No trader or roaster is willing to take delivery of conillons at the moment, as they (especially European roasters ) see them as an overpriced alternative to other robustas, consequently the stocks continue to grow with no one taking delivery. This has acted like a blanket over the market, depressing activity and thus muting any movement in either direction.

Yet again for the fifth week running, none of large traders have issued a market report this week. Five weeks ago, Brazilian 3/ 4’s were trading at minus 16; Honduras HG’s at plus 1; Kenya AB FAQ’s traded at plus 80/100; Colombian UGQ’s at plus 34; while PNG Y1’s were trading at minus 1. Assuming no change in price differentials, then if an exporter had fixed a price against the exchange on Friday for a shipment of Y1’s for Sept/Oct delivery, he should have secured a price between 106.30 and 109.50 cents/lb FOB.

With the threat of further cold weather in Brazil this week, the outlook, although relatively positive, suggests that the market will be fairly volatile. The New York Coffee market will be closed on Thursday for Independence Day, which will probably force many traders to take on extra cover on Wednesday as insurance against anything happening on Thursday. Of course, if nothing happens and the cold wave passes without incident, then prices will drop significantly.