Weekly Market Report – 21st June 2020

As anticipated both markets reacted negatively to the USDA report when they reopened on Monday. There was a brief rally on Wednesday but it was not enough as prices ebbed away on Thursday and Friday, possibly in response to selling pressure brought on by the fact that next Monday is first notice day for the spot position. Arabica coffee prices lost 1.10 cents/lb over the week while robusta prices shrunk by $37/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 roughly 10 toea/kg lower than they were last week.

Euromonitor further downgraded their forecast of global GDP for 2020 suggesting that it may shrink by as much as 4.5%. Of particular interest was what the report had to say about
Brazil, suggesting that the country is on the verge of a severe economic recession, “barely maintaining economic growth and is now facing an enormous threat from the covid-19 pandemic”. Brazil’s Central Bank has been forced to lower interest rates and the Treasury Minister resigned on Monday. Another factor for this week’s decline might have been the publication of the latest data from the Green Coffee Association (GCA), which showed that coffee stocks in warehouses in all ports of the United States totalled 6,818,120 bags at the end of May. This is 300,253 bags, or 4.6% higher than the previous month and 202,252 bags or 3.2% higher than at the end of May 2019. Furthermore, the latest data from the All Japan Coffee Association showed that the country’s green coffee stocks totalled 174,125 tons at the end of May. Up 2% from the 170,692 tons total in April, but 2.8% lower than the 179,085 tons recorded in May last year. The latest data from the Coffee Board of India suggests that the country’s exports since the start of the 2020 calendar year have only totalled 161,028 tons (2.68 million bags). This is down 16.8% from the same period last year. According a study released this week by Allegra, visiting restaurants, pubs and coffee shops are top of the list of things British people miss the most during lockdown, And although there are plans to ease things a bit from July 4th onwards, very little has been said about when the hospitality industry will start to open up again.

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 shrunk further this week. Brazilian 3 /4’s appear to be weaker at around minus 7; Honduras HG’s are also weaker at plus 29; Kenya AB FAQ’s are steady at plus 75/100; as are Colombian UGQ’s at plus 51; PNG Y1’s, however appear to be a lot lower at around plus 16/17. If an exporter had fixed a price on Friday for September delivery, he should have secured a price somewhere between 112.60 and 114.55 cents/lb.

There are reports that supplies remain very tight in Vietnam and the recent fall in robusta prices will not encourage growers who may be thinking about selling from doing so. However, the latest commitment of traders report suggests that speculators have increased their net short position by more that a third over the last week and there is no doubt that this probably played a significant role in this week’s decline. With the weather in Brazil looking good over the next 7 days, the outlook looks far from promising and whilst there is unlikely to be a collapse, prices may well ebb downwards over the week to come. maw