As suggested both markets were very jittery throughout the week awaiting publication of the USDA report. However, the USDA did release the attaché report for Vietnam which put production higher than many had anticipated. Consequently, prices ebbed downwards practically every day of the week with arabica coffee prices losing 3.65 cents/lb over the week and robusta lost $33/ton (1.50 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 roughly 25 to 30 toea/kg lower than they were last week.
The USDA has forecast world coffee production for 2020/21 at a record 176.1 million bags, 9.1 million bags higher than last year. The report also estimated global demand at 166.3 million bags, suggesting that there will be a global surplus of 9.8 million bags. This is not good news for producers, but the USDA is notorious for always erring on the high side when it comes to production and on the low side when it comes to consumption. Interestingly in the same report they lowered their December estimate of last year’s global output by 2.4 million bags. Brazil is forecast to account for most of the increase in global output with its output rising by 8.6 million bags to 67.9 million bags. Arabica output is up 6.8 million bags to 47.8 million bags as a result of the good weather conditions that prevailed in most coffee regions and the on-year of the biennial production cycle. Robusta production is forecast at a record 20.1 million bags, up 1.8 million bags from last year. By way of comparison IBGE has just revised its estimate of the Brazilian 2020/21 harvest to 57.3 million bags, some 10.6 million bags lower than the USDA forecast. It is difficult to assess how the markets will react as most of these figures were already in the public domain, but the size of the predicted surplus is of concern. Another factor which influenced coffee prices this week was the weakness of many Latin American currencies as speculators sold the currencies on fears of a second wave of the Covid-19 pandemic in the region. Brazil now has the second largest number of deaths due to the virus in the world. Furthermore, Brazil’s exports of green coffee in May are reportedly down 23.1% to 2.68 million bags, although exports over the first five months of the year are only down 4.2% at 14.9 million bags.
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 physical price differentials may have contracted this week. Brazilian 3 /4’s appear to be weaker at around minus 5/7; Honduras HG’s are also weaker at plus 31; Kenya AB FAQ’s are steady at plus 75/100; Colombian UGQ’s also appears to lost ground at plus 51; PNG Y1’s also appear to be slightly lower at around plus 18/20. If an exporter had fixed a price on Friday for September delivery, he should have secured a price somewhere between 115.70 and 118.45 cents/lb.
There is little doubt that both coffee markets will react negatively to the USDA report when they reopen on Monday. The big question will be whether they recover later in the week. There is growing evidence that both Brazil and Colombia are having problems finding experienced people to harvest the crop but whether this will have a significant impact is hard to say. With the weather forecasts for Brazil all suggesting that there is little sign of any cold weather in the next 2 weeks, there appears very little to support the market and thus further falls must be anticipated. maw