Weekly Market Report – 01 November 2020

The announcement of lockdown measures in a number of European countries appears to have unnerved both markets this week but the threat of damage to Vietnam’s crop from Typhoon Molave pushed robusta prices higher.  Unfortunately, it did not do the same for arabica prices which despite a strong start to the week fell by 1.55 cents/lb over the week.  Robusta coffee prices finished the week $46/ton (2.05 cents/lb) higher.  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. 

Arabica coffee prices gained ground at the beginning of the week in response to a weaker dollar which fell on uncertainty over the outcome of next week’s election. It is also thought that the funds had finally stopped liquidating the large long-position they had built up, so effectively easing up on the selling pressure. But further good rains in Brazil throughout the week as well as news of an upsurge in Coronavirus infections in Europe and the subsequent announcements of lockdowns in many countries reversed the positive outlook.  And as if to confirm the damage that the pandemic is having on demand, Starbucks published its July/Sept quarterly results this week reporting that global comparable store sales had declined 9%, this was due to a 23% decrease in comparable transactions, which was partially offset by a 17% increase in the average transactions value.  For the whole year global comparable store sales had declined by 14%, comprising a 22% decrease in comparable transactions, which was partially offset by a 10% increase in the average transaction value.  Brazil’s Secretariat of Agricultural Policy published its forecast for 2020/21 global coffee production this week putting it at 176.1 million bags, with global consumption estimated at 166.3 million bags, leaving a surplus of 9.8 million bags.  Global arabica production is forecast at 101.8 million bags, with Brazil accounting for 47.3 million bags, while robusta output is forecast at 74.3 million bags, with Vietnam accounting for 29.2 million bags. 

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 been relatively stable this week.  Brazilian 3 /4’s, however, are lower at around minus 20/21;  Honduras HG’s are steady at plus 19;  Kenya AB FAQ’s, maybe slightly higher at plus 75/90; Colombian UGQ’s are steady at plus 48; as are PNG Y1’s at plus 7.  If an exporter had fixed a price on Friday for February/March delivery, he should have secured a price somewhere between 113.25 and 115.30 cents/lb. 

Despite this week’s losses, arabica coffee prices remained firmer than anticipated.  This may well be a temporary lull while speculators and the funds assess their positions before making further commitment or it might be because there is still some uncertainty over the real impact of the pandemic on consumption.  The commitment of traders’ figures show that the commercial short position is in excess of 190,000 lots, which suggests that many origins have already locked-in higher prices for a significant proportion of their future sales and are, therefore, in no rush to sell at these prices.  Nevertheless, the outlook remains very precarious and much might depend on the outcome of this week’s US elections.  Even so, on balance it looks reasonable to suppose that prices will probably finish the week slightly lower.                                                                                                                         maw