Weekly Market Report – 11 October 2020
Despite a negative start to the week, as anticipated arabica coffee prices returned to an upward trajectory, reflecting concerns about the continuing dry weather in Brazil and a weaker US dollar. Over the week arabica coffee prices gained 2.85 cents/lb. Robusta coffee prices however did not follow suit and lost value primarily as a result of technical factors but also on the prospect of a good crop coming out of Vietnam. Robusta prices fell $31/ton (1.4 cents/lb) over the week, but it had fallen much further before a small rally later in the week limited the losses. In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea over the week to come will probably be around 20 toea/kg higher than what they were last week.
Heavy rain is forecast to hit many coffee growing areas of Brazil this week, but many growers in Brazil believe that the dry weather has caused irreversible damage to next year’s harvest already. However, much will depend on what happens next. A prolonged period of wet weather is required for the blossom to set and to ensure a good quality crop next year. If next week’s rain does not continue and dry weather returns then this will cause significant damage, hence why markets players are keeping a very close eye on all the forecasts. Brazil’s Institute of Geography and Statistics (IBGE) has estimated that Brazil’s 2020/21 coffee crop will be 60.6 million bags, up 1.7% from the forecast they made last month and 21.5% higher than what they say was produced in 2019. They report that the planted area declined by 0.6%, to a total of 1.9 million hectares, suggesting that the average yield increased by 2.2%, to 1,925 kg/ha. Allegra published their study on the Canadian market branded coffee shop segment, this week putting the number of such stores at 7,476 outlets. Nevertheless, the coronavirus pandemic is having a significant impact on the hospitality businesses across the country with Canadian operators reporting an average 50% loss of revenue for the six months March-August 2020, roughly C$27,786 in lost earnings per month. However, the report shows that approximately 90% of Canadian branded coffee shops resumed trading by September 2020, albeit with limited in-store service, following peak closures in March. Encouragingly, 51% of industry leaders surveyed believe coffee shop trading conditions will improve over the next 12 months, but 22% forecast further deterioration.
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 are largely unchanged from last week. Brazilian 3 /4’s appear steady at around minus 15; as are Honduras HG’s at plus 21; similarly Kenya AB FAQ’s, appear to be still trading at plus 75/95; while Colombian UGQ’s are unmoved at plus 50; PNG Y1’s also appear unchanged at plus 9. If an exporter had fixed a price on Friday for February/March delivery, he should have secured a price somewhere between 121.55 and 123.70 cents/lb.
Reports of heavy showers falling in Brazil this week may hit arabica coffee prices hard this week. Even so, it was interesting to note that in the latest Commitment of Traders Report speculators have reduced the long position they hold substantially, but they still hold a large overall long position. This suggests that the market may have already factored in next week’s rains and that the response may well be muted. Prices may therefore show a degree of resilience to any downward pressure, ending the week very close to where they are now. maw