Weekly Market Report – 25th October 2020
As expected, continuing rain in Brazil put pressure on both markets this week but a hint from the weather forecasters that it may turn drier in a couple of weeks’ time was sufficient to limit the losses. Appreciation of the Brazilian Real and Colombian Peso against the US dollar may also have had an impact. Arabica coffee prices lost 1.60 cents/lb over the week while robusta lost $8/ton (0.35 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 15 toea/kg lower than what they were last week.
Another factor which may have played a role in this week’s drop is the uncertainty over the scale of the impact of the Covid 19 Pandemic on demand. With many countries in Europe and the United states as well as elsewhere seemingly experiencing a second wave, there are fears that there may be long-lasting damage to global demand. However, at the moment, the evidence suggests that overall consumption is holding up well but that there have been significant shifts towards more mainstream qualities. Certified stocks have started to increase again although only marginally so, moving up from the 20-year record lows they had reached. It is unlikely that this will have had any impact on prices as the increase was very small but it is interesting to note that despite the rumours there has not been any sight of the huge volumes of semi-washed Brazilians being offered up for grading that many were warning about. Harvesting should have started by now in Vietnam, but it appears that heavy rain may delay the start by up to 3 or 4 weeks. It is difficult to say whether this will have a significant effect on the crop, but the rain may have knocked off some of the riper cherries and may end up affecting the overall quality of the harvest. Data released this week suggests that exports from Guatemala for coffee year 2019/20 are down around 10% at 3.19 million bags, while exports from Uganda are up significantly rising by over 20% to 5.36 million bags, up from 4.44 million bags last year.
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 may have fallen lower this week. Brazilian 3 /4’s appears to be a cent lower at around minus 18; Honduras HG’s are steady at plus 19; Kenya AB FAQ’s, however appear to be lower at plus 70/90; Colombian UGQ’s are a cent lower at plus 48; similarly PNG Y1’s are also lower at plus 7. If an exporter had fixed a price on Friday for February/March delivery, he should have secured a price somewhere between 114.50 and 116.70 cents/lb.
It is difficult to be optimistic about prices on either market over the week to come. Over the past week prices have remained within a relatively narrow band but the overriding pressure has been downwards. Analysts all appear to agree that there will sufficient coffee over the year ahead despite the dire warnings from some Brazilian farmers that the long hot dry season has caused damage to the crop. The longer it rains the less worried market participants become. All eyes will therefore remain on the long-range weather forecasts and although there is a chance of some further dry weather, at the moment it is still too far away for anyone to react too seriously. Consequently, it looks as though prices will continue to be subject to further downward pressure, finishing the week lower. maw