Weekly Market Report – 22 November 2020

Weekly Market Report – 22 November 2020

Initial reports of the devastation caused by Hurricane Iota, the second hurricane to hit Central America in 3 weeks pushed arabica coffee prices sharply higher. Subsequent reports, however, suggested that although there had been extensive damage, it was not as bad as initially feared.  Nevertheless, arabica coffee prices finished the week 5.85 cents/lb higher.  Robusta coffee prices however did not follow suit, although it is difficult to say why not.  Some analysts put this down to technical factors while others suggest it is because both the Brazilian conillon and the Vietnamese robusta crops will both be fairly large.  Over the week robusta coffee prices lost $24/ton (1.10 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 40 to 45 toea/kg higher than what they were last week.

Coffee prices also benefitted from the news that another vaccine for the Coronavirus has proven to be effective and that as a result, mass vaccinations should start early in the new year.  The USDA published some of its attaché reports this week maintaining their earlier estimates of Brazil’s crop at 67.9 million bags and the Colombian crop at 14.1 million bags, but marginally lowering their estimate of Indian and Vietnamese output to 5.25 million bags and 29.0 million bags respectively.  None of these figures were unexpected so had limited impact on the market. The full report is not due out until next month, but the USDA is expected to raise its estimate of the surplus due to lowering its expectations for global demand.   Of possibly greater impact to the market this week was the publication of the GCA stock figures which showed a 264,937 bag drop in US stocks to a total of 6.199 million bags.  This is the lowest total for 5 years. Stocks certified against the New York exchange however continue to rise gaining just over 38,000 bags to total 1.236 million bags.  Goldman Sachs predicted this week that arabica coffee prices will average around $1.12/lb over the next 3 months rising to $1.20/lb in 6 months’ time and $1.35/lb in a year’s time.

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 remained relatively stable this week.  Brazilian 3 /4’s, therefore, appear to be steady at around minus 19/20;  as are Honduras HG’s at plus 18;  Kenya AB FAQ’s, continue at plus 75/90; Similarly Colombian UGQ’s are also steady at plus 48; and PNG Y1’s remain at plus 7.  If an exporter had fixed a price on Friday for February/March delivery, he should have secured a price somewhere between 123.75 and 131.25 cents/lb.

The fall on Friday was fairly dramatic wiping out almost half of the gains made over the week and there must be every chance that the rout will continue into the early part of next week.            There are however some grounds for optimism for although the USDA have maintained their earlier forecast for Brazilian output, there is increasing evidence emerging that the long dry spell that Brazil experienced in August and September may impact yields.  Indeed, a couple of reports suggest that an increasing number of Brazilian farmers have decided that it would be an ideal time to heavily prune their trees which would impact yields even further.  However, this is only likely to become evident early in the new year.  So the more immediate outlook is one of uncertainty and prices will inevitably be fairly volatile over the week to come, possibly closing lower but nonetheless higher than they were a week ago.                                                                                                          maw