Contrary to expectations, coffee prices on both markets started the week off on a strong note, wobbled a bit mid-week before finishing the week off strongly. Commentators put the strong overtone down to technical factors but it appears that speculators are reluctant to add to their short position as the risk/reward ratio does not appear attractive enough, given the strong resistance to prices going below 95 cents/lb. Arabica coffee prices gained 4.90 cents/lb over the week while robusta prices rose by $96/ton (4.35 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 30 toea/kg higher than they were last week.
The rise this week was all the more remarkable given that the latest data from the Green Coffee Association (GCA), shows that coffee stocks in warehouses in all ports of the United States totalled 7,061,198 bags for the month ending June 30. This is 243,078 bags, or 3.6% higher than at the end of May and 241,075 bags (3.6%) higher than at the end of June 2019. This is also the highest level of stocks since September 2019. Reports suggest that coffee supplies coming out of Vietnam continue to be tight, although the latest export data from the Vietnam Customs Authority suggests that things are not as bad as many are reporting. This shows that the country exported 2.13 million bags in June and whilst this was 2% down from what was exported in May, the cumulative exports for the first six months of the 2020 calendar year totalled 15.7 million bags, 2.2% higher than over the same period in 2019. On the other hand data from the Indian Coffee Board shows that coffee exports since the start of the 2020 calendar year up until July 10th have totalled 186,303 tons (3.1 million bags), down 14.5% from the 217,845 tons (3.6 million bags) exported in the same period of 2019. A Colombian scientific study published this week has concluded that drinking 3 cups of coffee a day reduces general mortality by up to 17% and by between 19% and 21% for cardiovascular mortality. The health benefits of drinking coffee have been known about for a long time but this suggests that it can provide a significant benefit.
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 for some origins might have shrunk a bit this week. Brazilian 3 /4’s appear to be slightly lower at around minus 8/9; But Honduras HG’s are steady at plus 27/29; as are Kenya AB FAQ’s at plus 70/90; Colombian UGQ’s continue at plus 50; but PNG Y1’s, are a little lower at around plus 11/12. If an exporter had fixed a price on Friday for September/October delivery, he should have secured a price somewhere between 109.40 and 113.50 cents/lb.
The overall impression is that both coffee markets are treading water waiting for clearer indications as to the exact impact the pandemic is having on demand. A number of leading coffee companies are due to release their quarterly reports next week and this should be helpful in clarifying what is actually going on. However, the latest long-range weather forecasts suggest that it will turn very cold next weekend in some of the southern states of Brazil, particularly Parana. They suggest that it will remain just above freezing but speculators will probably wish to build in some protection. Consequently, prices should not come under too much pressure next week and may even creep up a bit, but much will depend on how the weather outlook develops. maw