Weekly Market Report – 03 October 2020
Coffee prices were extremely volatile this week initially reflecting the squaring-off of positions by a number of speculative hedge funds ahead of the new coffee year, but later in the week as a result of a negative forecast concerning global demand. There were interludes when prices tried to recover but the weight of selling was too great, and prices fell. Arabica coffee prices lost 4.25 cents/lb over the week, while robusta lost $65/ton (2.9 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 30 to 35 toea/kg lower than what they were last week.
In a presentation to the Swiss Trade Association, Rabobank analyst Carlos Mera forecast that global coffee demand will decline by 0.9% during 2020. If true, this would be the first time that demand has dropped since 1995. He did however, go on to say that should there be a Coronavirus vaccine he would estimate that demand may grow by 2% in 2021. Mera has estimated that Brazil’s 2020-2021 crop totalled 67.5 million bags, comprising 49 million bags of arabica and 18.5 million bags of robusta. Interestingly, Mera believes that because of the devaluation in the Brazilian Real, which has boosted prices to Brazilian growers, together with low interest rates, Brazilian growers will expand the area they plant to coffee. He also believes that Colombian farmers will do the same. In its September monthly report, the ICO notes that global coffee production in 2019/20 is estimated at 169.34 million bags, 2.2% lower than last year. World coffee consumption is also put 0.5% lower at 167.81 million bags reflecting the pandemic’s impact on global GDP and on out-of-home coffee consumption. As a result, coffee year 2019/20 is seen ending in a surplus of 1.54 million bags, the second year that there has been a surplus. The General Statistics Office of Vietnam estimate that Vietnam’s coffee exports in September should be approximately 1.67 million bags, up 8.3% from the same month last year. This would bring cumulative exports for the first nine months of the 2020 calendar year to 20.83 million bags, down 1.4% from 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 come under pressure this week. Brazilian 3 /4’s appear to be up a couple of cents lower at around minus 15; Honduras HG’s are also lower at plus 21; Kenya AB FAQ’s, however, are steady at plus 75/95; while Colombian UGQ’s are unmoved at plus 50; PNG Y1’s are also steady at plus 9. If an exporter had fixed a price on Friday for December/ January delivery, he should have secured a price somewhere between 116.15 and 120.95 cents/lb.
Long range weather forecasts suggest that there should be heavy rain in Brazil next weekend continuing on into the early part of next week, but there after it looks as though the country might be in for another spell of dry weather. Unfortunately, such long-range forecasts do tend to vary somewhat, and there is no indication whether the dry spell will last just a few days or longer. So, at the moment, nothing is really clear. The outlook therefore continues to be uncertain and as a result prices will probably continue to be volatile, although the small but nevertheless significant recovery on Friday suggests that prices may have reached a bottom and thus might end the week slightly higher.