Weekly Market Report – 05th July 2020

As highlighted last week, concerns over the cold front moving through southern Brazil over this weekend pushed arabica coffee pieces sharply upwards this week, even though the threat of a widespread frost was low. The areas most at risk grow very little coffee, so any frost would probably only do minimal damage, nevertheless this is the first real frost scare this year so the reaction was predictably positive. New York was closed on Friday for American Independence Day, so the possibility of something happening over the long weekend probably also had an influence. Arabica coffee prices gained 6.55 cents/lb over the week while robusta coffee prices rose $49/ton (2.2 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 45 toea/kg higher than they were last week.

Another reason why coffee prices rose this week may be due to the better than expected data released this week on the American economy. The US economy added 4.8 million jobs in June, the most on record and beating expectations of 3 million jobs. The total for May was also revised upwards to 2.7 million jobs. The US trade deficit, however, widened to $54.6 billion in May. The number of Americans filling for unemployment benefits eased slightly to 1.427 million in the week ended June 27th. Consequently, the US unemployment rate dropped to 11.1% from the all-time high of 14.7% reached in April and remaining below market expectations of 12.3%. According to the ICO global coffee exports fell by 14.5% in May 2020 compared to May last year, from 12.28 million bags to 10.49 million bags. Exports in the first eight months of coffee year 2019/20 (Oct/19 to May/20) have shrunk by 4.7% to 83.8 million bags compared to 87.96 million bags in the same period last year. In the 12 months ending May 2020, exports of arabica totalled 80.07 million bags down by 3.4%, while robusta exports totalled 47.58 million bags compared to 46.44 million bags. Reports released this week suggest that heavy rain in Colombia may well delay the development of the crop there, although at this stage there is no talk of any losses.

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 this week may have been mixed. Brazilian 3 /4’s appear steady at around minus 8; as are Honduras HG’s at plus 27/29; Kenya AB FAQ’s are slightly lower at plus 70/90; Colombian UGQ’s are marginally lower at plus 50; as are PNG Y1’s, at around plus 13/14. If an exporter had fixed a price on Thursday for September delivery, he should have secured a price somewhere between 115.50 and 117.65 cents/lb.

All the indications are that temperatures remained above freezing this weekend, but another cold front is forecast to hit Brazil next weekend. Once again temperatures are not predicted to fall below freezing but market participants will not be in any hurry to liquidate the insurance they bought for this weekend. Certified stocks on the New York market continue to shrink and although still more than adequate to facilitate market trading, there will be a concern that any further falls may create problems. Taking into account the fall in exports seen in May and the fact that the economic outlook is not looking as bad as many had been predicting, there is a fair chance that prices might improve a bit more this week. maw