Weekly Market Report – 24th May 2020

As anticipated arabica coffee prices fell in response to greater than expected increase in GCA stocks, although this was briefly offset by an appreciation in the value of a number of Latin American currencies.  Indeed, arabica coffee prices traded lower throughout the rest of the week, closing on Friday 3.25 cents/lb lower than at the start of the week.  The robusta market fared a little better possibly reflecting the apparent switch to lower grade coffees as well as a forecast from VICOFA that production next year will be around 20% lower.  As a result, robusta coffee prices gained $28/ton (1.25 cents/lb) over the week.   In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea over the week to come will probably be roughly 25 to 30 toea/kg lower than they were last week.

There have been a number of USDA attaché reports released this week with increases in production being forecast for Colombia, Honduras, India, Mexico, Tanzania and Uganda while production in El Salvador, Guatemala, Indonesia, Peru and Venezuela is expected to shrink.  However, it is still too early to reach any general conclusions from these reports.  In their latest report, Rabobank has forecast a global supply surplus of 7.6 million bags for the 2020/21 crop year. If this forecast remains unchanged, this would be the third consecutive crop year to end with a surplus, according to their data.  The report estimates that global production for the period should be 174.6 million bags while demand will be 167.00 million bags.  The report highlights the unexpected increase in unemployment which they believe will lower global coffee demand by 0.8% in 2020, to 164.1 million bags.   However, they also say that it is too early to make demand estimates with any degree of confidence.  Brazil’s 2020/21 coffee crop is estimated at 67.4 million bags, which would make it the highest crop on record, surpassing the previous record achieved during the last on-year season in 2018/19 by 5 million bags.  The Specialty Coffee Association (SCA) issued a report this week that attempted to explore the impact that COVID-19 has had on the specialty coffee sector in the US. Rather predictably the report found that coffee shops are increasingly turning to delivery and pickup to keep customers and ensure the sustainability of their operations. However, the report rather disappointingly makes no real attempt to assess the impact on overall demand.  Nevertheless, the report demonstrates the adaptability of the sector in this new environment.

Once again there have not been any formal reports from Traders this week, but other sources of data (which are not as reliable) suggest that physical price differentials continue to be under pressure.  Brazilian 3 /4’s appear to be slightly lower at around minus 4; Honduras HG’s are steady at plus 30/32;  Kenya AB FAQ’s are lower at plus 80/100; but Colombian UGQ’s are also lowers at plus 51; while  PNG Y1’s also appear to be slightly lower at around plus 22.  If an exporter had fixed a price on Friday for August/September delivery, he should have secured a price somewhere between 126.05 and 128.70 cents/lb.

Although both markets will be closed on Monday, prices will probably continue to be under pressure throughout the rest of the week.  The US dollar appears to be strong and any further upward movement will inevitably put pressure on prices.  However   , there is still some uncertainty about the impact of the pandemic on production, with evidence suggesting that output is set to fall in Colombia although so far there has not been any real assessment on its impact on Brazil’s upcoming harvest.  Consequently, any movement is likely to be muted.                                                                                                               maw