Weekly Market Report – 13 September 2020

Weekly Market Report – 13 September 2020

As anticipated the week started off on a negative note as traders liquidated the cover they bought prior to the long weekend.  However, over the last 2 days of the week prices recovered most of the ground they lost, ending the week lower but not significantly so.  Arabica coffee prices lost 1.75 cents/lb over the week while robusta lost $11/ton (0.50 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 to 15 toea/kg lower than they were last week.

Part of the resilience of arabica coffee prices to downward pressure lies in the fact that certified stocks continue to fall apace and now stand at a 20-year low.  There is talk of between 300,000 to 500,000 bags of Brazilian semi-washed coffees being certified against the market over the next few months but at this stage this remains pure speculation.  Some semi-washed Brazilian arabicas have been certified recently but a lot more have failed the grading, so it remains a gamble whether holders of this coffee are prepared to take the risk.  A coffee that has failed grading can still be sold on the open market but generally tends to be sold for a bit less than it otherwise would have, plus there is the cost of grading.  Another reason for the current resilience is the continued dry weather in Brazil which although normal for this time of the year may have already started to have an impact on unirrigated robusta that has already flowered.  Long range forecast suggest that the dry weather will continue for at least the next 10 days.  IBGE (Brazil’s Institute of Geography and Statistics) has lowered its estimate of Brazil’s 2020/21 coffee crop up by 1.0% to 59.6 million bags, which would be 19.4% higher than the 2019/20 harvest. Arabica coffee, production is put at 45.0 million bags, while robusta output is put at 14.6 million bags. The latest data from CeCafe showed that Brazil exported 2.97 million bags of green coffee in August, bringing the cumulative exports for the first eight months of the 2020 calendar year to 23.7 million bags, down 3.2% from the 24.5 million bags exported during the same period in 2019. 

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 shrunk a bit this week.  Brazilian 3 /4’s are down 2 cents at around minus 16;  Honduras HG’s however, appear steady at plus 24;  Kenya AB FAQ’s are slightly lower at plus 70/85; Colombian UGQ’s are unmoved at plus 50;  but PNG Y1’s are down a cent at plus 9.  If an exporter had fixed a price on Friday for November/ December delivery, he should have secured a price somewhere between 138.30 and 141.55 cents/lb. 

The resilience shown by the arabica market last week was impressive and although there appears to be every reason to think that prices might continue to remain firm, there is a worry that speculators might start to take their profits anytime soon. Much will depend on the longer range weather forecast and indeed the US Government has confirmed the presence of the weather phenomenon known as “La Nina” and has forecast that there is a 75% chance that it will continue for the next few months.  This will reduce rainfall in Brazil.  Nevertheless, all eyes will be on the forecast for the next few weeks and any hint of rain might well start the stampede.  So the outlook is fairly precarious, although at the moment there is every reason to think that prices might remain fairly stable this week, ending up roughly where they are now.                                                                                                                                   maw