Weekly Market Report – 20th December 2020

Weekly Market Report – 20th December 2020

After a rather hesitant start, arabica coffee prices advanced reasonably strongly on speculative buying spurred on by the prospects of a lower Brazilian arabica crop next year.  This advance was all the more surprising given that CONAB raised its’ estimate of this year crop bringing it more into line with other forecasts, albeit still somewhat lower. Towards the end of the week, however the rally ran out of steam and began to backtrack.  Nevertheless, arabica coffee prices finished the week 3.65 cents/lb higher while robusta coffee prices which remained subdued now that the Vietnamese harvest is well underway, managed to gain $23/ ton (1.0 cent/lb).   In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea over the week to come will probably be between 25 and 30 toea/kg higher than what they were last week.

Prices may also have received a boost from the publication of the GCA stock figures that showed that American stocks had fallen by 328,022 bags during November to total 5.809 million bags. This fall is larger than the usual fall of around 196,000 bags seen in November and is the lowest total since November 2015 when 5,791,996 bags were recorded. CONAB issued its final estimate of the 2002/21 harvest this week putting total production at 63.08 million bags, 27.9% higher than in 2019/20 and 1.4 million bags higher than the 61.6 million bags estimate they made in September. The harvested area increased by 3.9%, reaching 1.88 million hectares.  Arabica output is estimated at 48.77 million bags, while robusta (conillon) production was put at 14.31 million bags, down 4.7% from the previous harvest, primarily as a result of low rainfall in Espírito Santo. CONAB have not yet made any forecasts about next year’s crop.   In their latest report Rabobank has estimated global coffee production for the 2020/21 coffee year at 174.5 million bags, up 4.3% from the previous coffee year. Demand is forecast 164.5 million bags, suggesting a supply surplus of 10.1 million bags, which is roughly in line with last week’s USDA forecast.  For 2021/22, the bank sees global output falling to 166.5 million bags and demand rising to 167.6 million bags, suggesting a deficit of around 1.1 million bags. The bank put Brazil’s output next year at 57.4 million bags.

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 there has been very little movement in physical price differentials this week.  Brazilian 3 /4’s, remain at around minus 19/20; Honduras HG’s are relatively unmoved 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 130.50 and 134.80 cents/lb.

This week’s midweek rally was something of a surprise, but the fact that it ran out of steam was not totally unexpected. It could be argued that from a technical the market is gearing up for a further stab upwards and whilst such an argument cannot be dismissed out of hand there is cause for some caution as the turnaround may reflect the fact that speculators no longer see any upward potential.  Consequently, the outlook looks rather uncertain, but given that the Christmas holiday will shorten the trading week, many traders may well hedge their position ahead of the closure.  This should provide some sort of safety net against further losses.                                                                                                                                    maw