Weekly Market Report – 30th August 2020

Weekly Market Report – 30th August 2020

A surprisingly good week for both markets although most of the gains took place on Friday.  The main driver appears to have been a much stronger Brazilian Real and a weaker US dollar, although concern over the continuing fall in the volume of certified stock may also have played a part.  Arabica coffee prices reached a 6-week high gaining 6.55 cents/lb while robusta coffee prices rose by $23/ton (1.0 cent/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.

The Brazilian Real has been fairly volatile all week but the announcement that the Monetary Council of Brazil had approved a transfer of 325 billion Reais (US$58.3 billion) from the Central Bank of Brazil to the Treasury in order to ease its liquidity difficulties boosted the Real more than 2.0% on Friday. In turn this appears to have boosted prices on the New York market by around 4 cents/lb.  The cold front that hit Brazil last weekend and continued into the early part of the week was not as bad as many had feared and there were no frosts.  Indeed, the Brazilian frost season is effectively over now, although there have been a couple of minor frosts in September in Brazil during the last 50 years.  The Brazilian Coffee Industry Association (ABIC) has reported that the global COVID-19 pandemic has triggered an increase in coffee consumption throughout the country.  In March, the first month of the pandemic in Brazil, the country saw a 35% increase in consumption, and this appears to have been followed by a 20% increase in April.  Unfortunately, data for later months is not yet available.  A survey by Bloomberg published this week suggests that the 2020/21 Vietnamese crop might fall by around 4.8% to 28.7 million bags.  This is attributed to bad weather (heavy rain), a lack of reinvestment in the crop and a move by many farmers to switch out of coffee and into other more profitable crops.  Statistics published this week suggest that exports from Peru and Ecuador have fallen sharply with exports from Peru falling by just over 20% during the first 6 months of the calendar year to just below 600,000 bags.  However, Peru exports the bulk of its crop over the next 6 months so the fall, although dramatic, may not be that significant.  Ecuador’s exports have fallen by just over 7% over the same period.

Once again there have not been any formal reports from Traders this week, but other sources of data (which I cannot stress enough are not as reliable) suggest that movements in physical price differentials have been mixed this week.  Brazilian 3 /4’s are down 2 cent at around minus 14;  Honduras HG’s are also down a bit at plus 24;  Kenya AB FAQ’s however are higher at plus 80/95; Colombian UGQ’s are steady at plus 50; as are PNG Y1’s at around plus 10.  If an exporter had fixed a price on Friday for November/ December delivery, he should have secured a price somewhere between 131.55 and 136.65 cents/lb.

With certified stocks shrinking, roasters will have to switch from this relatively cheap source of coffee to that available from origin at what are historically high differentials.  In the past, such a situation caused futures market prices to rise.  While this may still be some way off, there is no doubt that the outlook is more bullish now than it has been for some time. However, keeping a lid on any price increase is the fact that Brazil will produce a bumper crop next year.  This week’s rise may provoke a downward move in the early part of next week, but there is every reason to hope that prices might end the week slightly higher.                                                                                                                   maw