Weekly Market Report – 13th December 2020
A stronger Brazilian Real, a weaker US dollar and a report from ECOM putting the Brazilian crop lower than many were anticipating, combined to push arabica prices higher this week. However the robusta market failed to follow suit primarily because there remains widespread expectations that the Brazilian conillon crop will be much higher next year. Arabica coffee prices gained 4.05 cents/lb over the week while robusta prices gained just $2/ton (0.1 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 30 toea/kg higher than what they were last week.
ECOM forecast this week that next year’s (2021/22) Brazilian arabica crop should total around 34 million bags citing the stress that the huge 2020/21 coffee crop put on the trees, as well as the fact that the 2021/22 crop year will be an off-year in the biennial cycle. They however anticipate that the conillon crop will be large, probably reaching around 21 million bags. The USDA released its latest report on Friday after the markets had closed and raised its estimate of a global surplus for the 2020/21 crop year to 10.08 million bags up from 9.8 million bags that it forecast in June. Its figure for global output of 175.48 million bags was already largely anticipated as the majority of its individual country figures have been published over the last few weeks. However, their estimate of global consumption has been revised down to 165.4 million bags from their previous estimate of 166.3 million bags. The coffee harvest in Vietnam is now well underway and estimated to be 25% completed having been delayed by heavy rains and tropical storms. Some analysts believe that the bad weather will have a detrimental impact on both the quality and yield of the crop and have therefore have revised their forecasts lower, but not by much. A new report from Allegra Coffee Strategies on 17 East Asian branded café markets, including South Korea, China and Japan suggests that the region’s branded coffee shop market grew by 3,630 outlets over the last 12 months to reach 74,535 stores, representing 5.1% growth.
Once again, I have not been able to access 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 once again remained relatively stable this week. Brazilian 3 /4’s, remain at around minus 19/20; Honduras HG’s are now back to pre-hurricane levels at plus 20; Kenya AB FAQ’s, continue at plus 75/90; 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 March/April delivery, he should have secured a price somewhere between 127.20 and 130.55 cents/lb.
The USDA report is unlikely to have that much of an impact on the market although the headline alone may prompt some initial selling first thing on Monday. The publication of the CONAB report on Thursday on how next year’s crop potential has been impacted by the drought might have a more significant impact, although given that a number of trade houses have already predicted a sub 35 million bag arabica crop next year, the impact may already be factored in. Consequently, the outlook remains somewhat uncertain and whilst there is significant potential for upward movement, the fact that much of this week’s rise has been driven by funds and speculators rather than roasters who appear uninterested in taking a long position suggests that the price rise might be fragile. With luck prices should remain stable. maw