As anticipated there was a small bounce in coffee prices this week, primarily as a result of the appreciation of the Brazilian Real and better than anticipated economic data, particularly US payroll data which saw US unemployment levels fall from record highs during May. Arabica coffee prices gained 2.50 cents/lb over the week while robusta coffee prices gained $56/ton (similarly 2.50/lb). In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea over the week to come will probably be roughly 20 toea/kg higher than they were last week.
Part of the recovery this week may also be attributed to clarifications given by the head of ABIC about last week’s statement that Brazilian consumption had fallen by 30% in April. What was not pointed out at the time was that demand had surged by 35% in March as a result of panic buying and stock piling just prior to quarantine measures being imposed, so the overall effect was in fact neutral. Indeed, consumption appears to have returned to normal levels in May. ICO data released this week suggests that global exports in April 2020 totalled 10.82 million bags, 3.1% lower than the 11.17 million bags exported in April 2019. Exports in the first 7 months of coffee year 2019/20 reached 72.78 million bags, down by 3.8% compared to 75.67 million bags for the same period in 2018/19. Arabica exports fell by 7.7% to 45.27 million bags while robusta shipments increased by 3.3% to 27.52 million bags. A new study conducted by scientists at the University of South Queensland was published in the Journal of Global Change Biology this week and suggests that robusta coffee is more at risk from global warming than previously thought. The study suggests that the ideal temperature for growing robusta is between 18.6 to 26.6 degrees Celsius, as opposed to the range of 22 to 30 degrees Celsius, which was previously considered the ideal temperature range. The findings are based on crop data over a 10-year period from 798 farms in Vietnam and Indonesia. The American coffee company J. M. Smucker reported this week that their net sales grew by over 10% during the quarter ending April 30th mainly driven by pandemic inspired panic buying. However full-year data suggests that sales are only up by 1%.
Once again there have not been any formal reports from Traders this week, but other sources of data (which I need to stress are not as reliable) suggest that movements in physical price differentials may have been mixed this week. Brazilian 3 /4’s appear to be weaker at around minus 5; but Honduras HG’s are firmer at plus 33/35; Kenya AB FAQ’s are steady at plus 75/100; Colombian UGQ’s maybe slightly higher at plus 53; but PNG Y1’s appear to be slightly lower at around plus 20/22. If an exporter had fixed a price on Friday for September delivery, he should have secured a price somewhere between 119.65 and 122.35 cents/lb.
The USDA will publish its next bi-annual report on Friday 12th June but only after the markets have closed. Nevertheless, many of the estimates have already appeared in the press and these suggest that the agency’s forecast of global production will be significantly higher than last year. However, as these figures have already been factored into the market over the last few weeks, its impact on the market will be muted. Even so, there will be a degree of nervousness over the week which might increase market volatility. It is therefore difficult to say with any degree of certainty which way the markets might go next week but there appears every chance that prices will end the week very close to where they started.