Weekly Market Report – 06 September 2020
Another surprisingly good week for the arabica coffee market, although the exact cause is hard to pinpoint. Continuing dry weather in Brazil appears to be one factor, although it is always dry at this time of the year in Brazil. The continuing decline in certified stocks appears to be another. Arabica coffee prices gained 7.65 cents/lb over the week. Robusta prices did not fare as well, possibly reflecting the fact that the robusta market was closed on Monday, although this should not have been a factor. Robusta prices still moved ahead but only by $15/ton (0.70 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 50 to 55 toea/kg higher than they were last week.
The ongoing spell of dry weather in Brazil has prevented any early flowering of the arabica crop, but historically this is fairly normal and the early flowerings we have seen in previous years have been something of an abnormally. Weather forecasters however are also predicting that the country will remain dry for the next 2 weeks but should see some rainfall by the end of the month. At the moment therefore there is not really any significant risk to next year’s crop but if the dry weather continues into October then much will depend on when the drought breaks and how much rain falls. Certified stocks on the New York exchange fell by a further 92,000 bags this week taking the total to the lowest level since the year 2000. It is not yet critical however but is clearly a cause for concern. The ICO has significantly revised their forecast for the 2019/20 global coffee balance this week forecasting a 952,000-bag surplus, compared to their July forecast of a 486,000-bag deficit. They now forecast production at 169.34 million bags, and consumption at 168.39 million bags. They also published data on global coffee exports, which they estimate amounted to 10.61 million bags in July 2020, down 11% from July 2019. In the 12 months ending July 2020, exports of arabica totalled 78.92 million bags compared to 83.72 million bags last year; whereas robusta exports amounted to 48.58 million bags compared to 49.59 million.
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 physical price differentials have been fairly stable this week. Brazilian 3 /4’s are steady at around minus 14; as are Honduras HG’s at plus 24; Kenya AB FAQ’s remain quoted at plus 80/95; Colombian UGQ’s are also unmoved at plus 50; PNG Y1’s continue 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 141.75 and 145.55 cents/lb.
The arabica market in New York will be closed on Monday for the American Labour Day celebrations. Traders may have bought some cover for the long weekend on Friday and this may have boosted prices as a result. If so then there might well be some initial selling when the market reopens on Tuesday. Much will also depend on whether the longer-range weather forecast for Brazil changes or not. There is talk of semi washed Brazils being allowed to be tendered against the C contract as this would ease the problem with certified stocks, but it would further undermine the credibility of the contract. Consequently, the week ahead has potential for the market to be fairly volatile and it is anyone’s guess which way it might go, but there is a reasonable chance that prices will cling onto most of this week’s gains.