Weekly Market Report: 29 November 2020

Despite the fact that the arabica market was closed on Thursday for Thanksgiving, it was, as anticipated, a fairly volatile week.  Prices initially dipped following on from last Friday’s dramatic crash on reports that suggested that the damage caused by the 2 hurricanes in Central America was not as bad as first thought.  However by Wednesday things started to improve and on Friday a report from Volcafé that suggested that the Brazilian arabica crop might be a third lower as a result of the dry weather seen during August and September sent the market spiralling upwards.  Over the week arabica coffee prices gained 6.15 cents/lb while robusta prices were $27/ton (1.2 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 45 to 50 toea/kg higher than what they were last week.

The Volcafe report which caused such a dramatic jump in prices, appears to be at odds with other estimates made even just a few days earlier.  The USDA put the Brazilian crop at 67.9 million bags and on Monday this week Rabobank forecast that Brazil’s 2021/22 coffee crop will be 60.7 million bags. This would be a 10% decline from the previous crop, when the bank said 67.5 million bags were produced.  Of the 60.7 million bags, the banks estimates that arabica production will account for 40.5 million bags, down 17.3% year on year, while the conillon crop is forecast at 20.2 million bags, up 9.2% from the previous crop year.  Volcafe put the Brazilian arabica crop at 34.2 million bags.  According to the latest USDA attaché report, Indonesia’s 2020/21 coffee crop is forecast at 10.7 million bags, which roughly the same as they predicted for last year.  There was a nasty incident in Colombia last weekend when at least 10 coffee pickers were assassinated on a farm in the village of La Julia by heavily armed men.  The exact reason for the attack is unclear but it has prompted the authorities to revise the protocols governing the recruitment of coffee pickers.  The J.M. Smucker Co. announced its 2nd quarter results this week reporting that net sales grew $51.3 million, thanks largely to an increase in at-home consumption of their mainstream brands.

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, although Central American differentials have risen sharply to reflect the uncertainty over future supplies.  Brazilian 3 /4’s, remain at around minus 19/20; but Honduras HG’s are sharply up at plus 26;  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 126.65 and 131.80 cents/lb.

The conflicting reports over the potential size of the upcoming arabica crop has introduced an element of uncertainty which might take some time to resolve.  The market and indeed some analysts have up until Friday believed that the reports about possible damage to the crop were exaggerated by Brazilian farmers, but given the reputation of Volcafe any report emanating from that source has to be taken seriously.  As stated last week it will take some time for the situation to become clear as assessment surveys have been restricted as a result of the pandemic.  Consequently, until this happens prices will continue to be volatile but further price rises can be anticipated over the week ahead.                                                                                                                                                               maw