Weekly Market Report – 16th August 2020
It had all the hallmarks of being a very bad week for both markets with prices falling heavily throughout the first half of the week. The outlook however changed with the publication of a report that significantly increased the probability of a La Nina weather phenomenon occurring over the next few months. This coupled with a devaluing dollar helped to reverse the downward trend, but unfortunately it was not enough with arabica coffee prices losing 1.45 cents/lb. Robusta coffee prices, however rose by $21/ton (0.95 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 10 toea/kg lower than they were last week.
According to the latest forecast from NOAA and the Climate Prediction Centre of the US, there is now a 60% chance of La Niña developing over the next 6 months, up from the 50% chance that was forecast last month. A La Niña is associated with irregular rainfall in Brazil possibly impacting the upcoming arabica coffee flowering (although flowering has begun in some robusta producing areas), heavier than usual rainfall in Vietnam, Indonesia and possibly in PNG and drier weather or even drought in other arabica coffee producing countries. There have been good rains in Vietnam over the last couple of weeks which has been beneficial for the development of the crop but if the rain continues into the 4th quarter of the year then it will not only hamper the harvest, but will also impact the quality of the coffee being picked. The latest data from the Brazil’s CeCafe showed that Brazil exported 2.7 million bags of green coffee in July, down 11% from the 3 million bags exported last July. Arabica coffee exports totalled 2.3 million bags, down 7.4% from the 2.4 million bags exported last July, while robusta exports totalled 446,426 bags, down 25.8%. This brought cumulative exports for the first seven months of the 2020 calendar year to 20.6 million bags, down 4.1%, arabica exports are down 5.4%, but robusta exports are up 15% at 2.6 million bags. Stocks certified against the New York exchange continue to fall sharply as roasters find such stocks more attractively priced than fresh coffee from origin which come with a high price differential. Over the week the total fell by just over 78,000 bags to 1.390 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 are a bit lower again this week. Brazilian 3 /4’s are down a cent at around minus 11; Honduras HG’s are also slightly lower at plus 25/26; Kenya AB FAQ’s continue to be quoted at plus 70/90; likewise Colombian UGQ’s remain firm at plus 50; PNG Y1’s, are slightly lower at around plus 10/11. If an exporter had fixed a price on Friday for November/ December delivery, he should have secured a price somewhere between 126.20 and 131.00 cents/lb.
GCA stock figures will be published on Monday and while the market would normally be expecting a rise of between 200,000 bags to 250,000 bags, there are a number of uncertainties this year in view of the possible impact that the pandemic has had on demand. Some analysts expect much higher figures while others remain unsure. If significantly less, then prices will rise, but if more then there is a good chance that prices might continue to fall. However, while the resilient shown by the market to downward pressure this week was reasonably strong, it is difficult to say whether this will continue into next week. With luck prices will remain very close to where they are now, but the signs suggest that prices might fall further.. maw