Weekly Market Report – 26th July 2020

Despite the fact that weather forecasts for Brazilian coffee growing areas improved significantly indicating that the anticipated cold front would remain much further south than initially thought, coffee prices on both markets had a much better than expected week.  It is difficult to pinpoint why this was so, but a weakening dollar certainly played a part, as did concerns about the lack of rainfall in Vietnam.  Arabica coffee prices gained 6.5 cents/lb over the week while robusta coffee prices rose by $65/ton (2.95 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 40 to 45 toea/kg higher than they were last week.

The weakness of the US dollar appears to be related to the strengthening of the Euro following agreement last weekend by the EU on the coronavirus recovery fund as well as strengthening Latin American currencies, although they remained fairly volatile throughout the week.  In particular, the Brazilian Real strengthened after significant progress was made on tax law reform in the Brazilian Congress.  Another reason for the boost to coffee prices this week has been attributed to the increasing optimism surrounding the search for a Covid 19 vaccine, although it has also been acknowledged that there is still a long way to go before a successful vaccine will be widely available.  In Colombia, the President has extended the quarantine period for a 6th time to August 1st.  Growers there are reporting that although they are experiencing difficulties with the availability of labour they are not as bad as many were anticipating.  However, they all report increases in the cost of raw materials and difficulties accessing international markets, with many reporting that contracts are either being cancelled, or the volumes reduced. Fitch Solutions forecast this week that the 6 million bag surplus they estimate for 2019/20 coffee year will grow even bigger next year (2020/21) to over 12 million bags.  They are now predicting that arabica coffee prices will be roughly flat at current levels throughout 2020 and then be broadly lower through to 2024. They see Brazil’s 2020/21 crop at 61 million bags, Honduras at 6.55 million bags, Colombia at 14.54 million bags, Vietnam at 29.89 million bags, and Indonesia at 10.3 million bags.  They put global consumption at 163 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 have been relatively stable this week.  Brazilian 3 /4’s appear to be steady at around minus 8/9;  as are Honduras HG’s at plus 27/29;  Kenya AB FAQ’s are still quoted at plus 70/90; similarly Colombian UGQ’s continue at plus 50; PNG Y1’s, are also steady at around plus 11/12.  If an exporter had fixed a price on Friday for November/December delivery, he should have secured a price somewhere between 120.20 and 122.85 cents/lb.

The long-range weather forecasts suggest that it will remain mild in Brazilian coffee growing areas over the next 2 weeks.  Coffee stocks certified against the New York C contract continue to shrink but this is more a reflection of the strength physical price differentials than of the supply/demand situation.  Nevertheless, as this stockpile shrinks, so the higher physical coffee price differentials become more of a reality for roasters and this may eventually have a knock-on effect on the futures market.   That is not happening yet, but the pressure is building.  Prices are firm and should continue to be so throughout the week to come.                                                                                                               maw