Weekly Market Report – 04 August 2019

Just as we all thought the frost season was over, on Monday weather forecasters in Brazil predicted that there might be another frost this weekend. The threat however, appears to have been short-lived and, whilst not totally dismissed, has been seriously downgraded to just the possibility of another cold spell. Prices initially rallied but fell back later in the week, so much so that by close of business on Friday arabica coffee prices were 1.70 cents/lb lower than were at the start of the week and robusta coffee prices had lost $36/ton (1.70 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/kg lower.

On Monday Brazil-based Somar Meteorologia, issued a forecast that suggested that a cold front would move over Brazil on Thursday, bringing mostly rain to the coffee producing areas of Paraná on Thursday and Friday. They suggested that over the weekend, the rain will reach the coffee producing areas in the Southeast but warned that temperatures would begin to drop as the rain stops heightening the risk of frost in Paraná and Southern areas of Minas Gerais early next week. Both of these areas had a small frost on July 6th and 7th, and whilst the real impact of frost cannot truly be determined until the crop begins to flower, initial assessments estimate that about 2% of the crop was damaged. This threat was subsequently downgraded but late on Friday Radiant, another Brazilian based weather analyst, raised the risk of frost occurring on Saturday and Sunday nights, although other weather forecasters appear confident that no frost will occur. The Brazilian Real remained weak all week following a cut in interest rates by the Brazilian Central Bank, a weak Real raises prices to growers in local terms and hence puts pressure on coffee prices. In addition, there has been a substantial build up in the open position on the New York C contract this week which most analysts attribute to the large hedge funds building up their short positions following their enforced liquidation early on in July when the frost push prices sharply upwards. Marex Spectron forecast this week that 2019/20 global production will be 165.5 million bags, while consumption should total 168.9 million bags, implying a supply deficit of 3.4 million bags.

Some of the traders have restarted issuing market reports this week enabling an update on what has been happening in the physical market. The number of information sources remains limited but is much better than it has been for some time. Brazilian 3 /4’s appear to be trading at around minus 12/13; unfortunately no quotes can be obtained for Honduras HG’s; Kenya AB FAQ’s are trading at around plus 80/90; Colombian UGQ’s are quoted at plus 32; while PNG Y1’s are quoted at plus 1. If an exporter had fixed a price on Friday for a shipment of Y1’s for November/December delivery he should have secured a price somewhere between 101.35 and 103.45 cents/lb.

Temperatures in Brazil this weekend are well above freezing and whilst temperatures can drop suddenly, the warning issued on Monday appears to have been over-hyped. Indeed, even Friday’s elevated risk threat appears to have rather alarmist, but it is always a mistake to dismiss these threats out of hand. Nevertheless, the outlook is not particularly rosy and indeed with various companies and agencies all predicting a massive crop in Brazil next year, and in the absence of the threatened frost, further falls must be anticipated.

Mick Wheeler