The threat of a frost this weekend in Brazil has overshadowed both markets this week with prices reacting to each weather forecast by either moving up or down. Overall however, both markets performed relatively positively, but a significant drop in prices on Friday wiped out most of the week’s gains. Nevertheless, arabica coffee prices gained 1.65 cents/lb over the week while robusta put on $7/ton (0.3 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 10 to 15 toea per kg higher than they were last week.
The latest forecasts have significantly downgraded the threat of a severe frost, now saying the cold air won’t make it to Brazil’s largest coffee producing state, Minas Gerais, although parts of Parana and Sao Paulo will still see dropping temperatures. Some frost is possible in higher altitude areas over the weekend. In the most vulnerable coffee growing areas, however, the temperature is not expected to fall below 2 or 3 degrees C, while in most other coffee growing areas the temperature is not expected to fall below 5 degrees C. In their latest report, the ICO has revised down their estimate for the global 2018/19 coffee crop to 167.75 million bags, down 0.2% from their previous estimate of 168.05 million bags. Their estimate for consumption has remained the same at 164.64 million bags. Consequently, their forecast now suggests a surplus of 3.11 million bags in coffee year 2018/19, down 8.8% from their previous estimate of a 3.41million bag surplus. This is following a surplus of 3.84 million bags in coffee year 2017/18. The ICO also reported this week that global exports amounted to 11.6 million bags in May 2019, up 19.5% compared with 9.71 million in May 2018. Exports in the first 8 months of coffee year 2018/19 (Oct/18 to May/19) have increased by 7.5% to 86.57 million bags compared to 80.5 million bags in the same period in 2017/18. In the twelve months ending May 2019, exports of arabica totalled 81.71 million bags compared to 75.36 million bags last year; while robusta exports amounted to 46.24 million bags compared to 44.19 million bags. Following a survey, Rabobank has estimated that in March 2019 Brazilian arabica stocks in private hands (i.e. by farmers) totalled 18.872 million bags, this is nearly 59% higher than the CONAB estimate of 11.851 million bags. According to the latest data from the Colombian Coffee Federation (FNC), Colombian coffee production totalled 1.2 million bags in June, up 11.4% from the 1.1 million bags produced in the same month last year. In the last 12 months (July 2018-June 2019), coffee production totalled 13.7 million bags, 4.5% lower than the 14.4 million bags produced in the same period last year.
Data on price differentials has become increasingly difficult to obtain from traders and as a result it is not possible to give an update on this important aspect of coffee price formation. Hopefully things will be resolved soon and this section can then be updated, as before, but there seems little point in publishing data which is now over 6 weeks old.
Whilst, the threat of a frost in Brazil appears to be receding, there remains the possibility that some damage might be caused by the cold front over the next 48 hours. Nevertheless, given that the threat appears to be overblown, there is a strong possibility that prices will tumble on Monday and may continue to fall throughout the week. There will be some focus on the World Coffee Producers Forum taking place midweek to see whether any radical action is proposed, but that is unlikely to have any major effect on the overall downward push. maw