Weekly Market Report – 25th October 2020

Weekly Market Report – 25th October 2020

As expected, continuing rain in Brazil put pressure on both markets this week but a hint from the weather forecasters that it may turn drier in a couple of weeks’ time was sufficient to limit the losses.  Appreciation of the Brazilian Real and Colombian Peso against the US dollar may also have had an impact.  Arabica coffee prices lost 1.60 cents/lb over the week while robusta lost $8/ton (0.35 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 15 toea/kg lower than what they were last week.

Another factor which may have played a role in this week’s drop is the uncertainty over the scale of the impact of the Covid 19 Pandemic on demand.  With many countries in Europe and the United states as well as elsewhere seemingly experiencing a second wave, there are fears that there may be long-lasting damage to global demand.  However, at the moment, the evidence suggests that overall consumption is holding up well but that there have been significant shifts towards more mainstream qualities.  Certified stocks have started to increase again although only marginally so, moving up from the 20-year record lows they had reached.  It is unlikely that this will have had any impact on prices as the increase was very small but it is interesting to note that despite the rumours there has not been any sight of the huge volumes of semi-washed Brazilians being offered up for grading that many were warning about.  Harvesting should have started by now in Vietnam, but it appears that heavy rain may delay the start by up to 3 or 4 weeks.    It is difficult to say whether this will have a significant effect on the crop, but the rain may have knocked off some of the riper cherries and may end up affecting the overall quality of the harvest.  Data released this week suggests that exports from Guatemala for coffee year 2019/20 are down around 10% at 3.19 million bags, while exports from Uganda are up significantly rising by over 20% to 5.36 million bags, up from 4.44 million bags last year.

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 fallen lower this week.  Brazilian 3 /4’s appears to be a cent lower at around minus 18;  Honduras HG’s are steady at plus 19;  Kenya AB FAQ’s, however appear to be lower at plus 70/90; Colombian UGQ’s are a cent lower at plus 48; similarly PNG Y1’s are also lower at plus 7.  If an exporter had fixed a price on Friday for February/March delivery, he should have secured a price somewhere between 114.50 and 116.70 cents/lb.

It is difficult to be optimistic about prices on either market over the week to come.  Over the past week prices have remained within a relatively narrow band but the overriding pressure has been downwards.  Analysts all appear to agree that there will sufficient coffee over the year ahead despite the dire warnings from some Brazilian farmers that the long hot dry season has caused damage to the crop.  The longer it rains the less worried market participants become.  All eyes will therefore remain on the long-range weather forecasts and although there is a chance of some further dry weather, at the moment it is still too far away for anyone to react too seriously.  Consequently, it looks as though prices will continue to be subject to further downward pressure, finishing the week lower.                                                                                                                            maw

Weekly Market Report – 18 October 2020

Weekly Market Report – 18 October 2020

As predicted arabica coffee prices fell on Monday when it was confirmed that it was raining in Brazil.  There was however a small bounce on Tuesday but thereafter prices ebbed away.  By the end of the week arabica coffee prices had lost 3.80 cents/lb.  Robusta coffee prices although initially dipping on Monday staged a more convincing recovery and finished the week $17/ton (0.80 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 25 to 30 toea/kg lower than what they were last week.

The Brazil Coffee Export Association (CeCafe) reported that Brazil exported 3.5 million bags of green coffee in September, up 11.2% from the 3.1 million bags exported during the same month last year.  It is interesting to note that Cecafe also said that a lack of containers and warehouse space prevented the country from exporting more. US Green Coffee Association (GCA), coffee stocks totalled 6,402,065 bags at the end of September, down 343,271 bags from the August total and 12.9% or 950,169 bags lower than in September 2019. Over the past 5 years GCA stocks have fallen by an average of 103,076 bags, so this year’s fall is significantly larger.  However, some analysts believe that this fall reflects the fall in imports of coffee into the US.  This may well be true but an NCA survey published this week shows that shows the pandemic has not changed the amount of coffee Americans drink at just under 3 cups per day per coffee drinker or how often.  60% of Americans drink coffee every day. Just as before the pandemic, the vast majority of coffee drinkers (about 80 percent) drink coffee at home, but more than one-third miss visiting coffee shops. More than half of Americans have already returned to coffee shops or plan to do so in the next month. 75% of coffee drinkers say the pandemic has not changed their consumption of coffee and of the remainder most now say that they make more coffee at home. The survey also found that App-based ordering, including delivery, increased by over 63% amongst those who drank coffee in the last week while drive-through ordering increased by 13%.  Another study published this week – “Global Coffee Market Trends and Forecast (2020 – 2025) – suggests that the global market will grow over the forecast period by around 4.22% p.a. in value terms.

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 are lower this week. Brazilian 3 /4’s appears to be 2 cents/lb lower at around minus 17;  Honduras HG’s are also down 2 cents at plus 19;  Kenya AB FAQ’s, however appear to be steady at plus 75/95; Colombian UGQ’s are a cent lower at plus 49; PNG Y1’s are also lower at plus 8.  If an exporter had fixed a price on Friday for February/March delivery, he should have secured a price somewhere between 117.55 and 121.60 cents/lb.

Long range weather forecasts for Brazil show rain fall hitting all coffee growing areas of Brazil at some point in time over the next 2 weeks.  This will be beneficial, but the rains so far have been sporadic and irregular, and some areas of Central Brazil have seen record high temperatures, which some believe will have damaged the crop already.  Indeed some are already talking of next year’s crop being as much as 30% lower than this year’s.  Even so, the rains will inevitably be bearish for the market   Prices will therefore come under downward pressure and will probably finish the week lower but, hopefully, not significantly so.                                                                                                                           maw

 

Weekly Market Report – 11 October 2020

Weekly Market Report – 11 October 2020

Despite a negative start to the week, as anticipated arabica coffee prices returned to an upward trajectory, reflecting concerns about the continuing dry weather in Brazil and a weaker US dollar. Over the week arabica coffee prices gained 2.85 cents/lb.  Robusta coffee prices however did not follow suit and lost value primarily as a result of technical factors but also on the prospect of a good crop coming out of Vietnam. Robusta prices fell $31/ton (1.4 cents/lb) over the week, but it had fallen much further before a small rally later in the week limited the losses.  In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea over the week to come will probably be around 20 toea/kg higher than what they were last week.

Heavy rain is forecast to hit many coffee growing areas of Brazil this week, but many growers in Brazil believe that the dry weather has caused irreversible damage to next year’s harvest already.  However, much will depend on what happens next.  A prolonged period of wet weather is required for the blossom to set and to ensure a good quality crop next year.  If next week’s rain does not continue and dry weather returns then this will cause significant damage, hence why markets players are keeping a very close eye on all the forecasts. Brazil’s Institute of Geography and Statistics (IBGE) has estimated that Brazil’s 2020/21 coffee crop will be 60.6 million bags, up 1.7% from the forecast they made last month and 21.5% higher than what they say was produced in 2019. They report that the planted area declined by 0.6%, to a total of 1.9 million hectares, suggesting that the average yield increased by 2.2%, to 1,925 kg/ha.  Allegra published their study on the Canadian market branded coffee shop segment, this week putting the number of such stores at 7,476 outlets.  Nevertheless, the coronavirus pandemic is having a significant impact on the hospitality businesses across the country with Canadian operators reporting an average 50% loss of revenue for the six months March-August 2020, roughly C$27,786 in lost earnings per month. However, the report shows that approximately 90% of Canadian branded coffee shops resumed trading by September 2020, albeit with limited in-store service, following peak closures in March. Encouragingly, 51% of industry leaders surveyed believe coffee shop trading conditions will improve over the next 12 months, but 22% forecast further deterioration.

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 are largely unchanged from last week. Brazilian 3 /4’s appear steady at around minus 15;  as are Honduras HG’s at plus 21;  similarly Kenya AB FAQ’s, appear to be still trading at plus 75/95;  while Colombian UGQ’s are unmoved at plus 50; PNG Y1’s also appear unchanged at plus 9.  If an exporter had fixed a price on Friday for February/March delivery, he should have secured a price somewhere between 121.55 and 123.70 cents/lb.

Reports of heavy showers falling in Brazil this week may hit arabica coffee prices hard this week.  Even so, it was interesting to note that in the latest Commitment of Traders Report speculators have reduced the long position they hold substantially, but they still hold a large overall long position.  This suggests that the market may have already factored in next week’s rains and that the response may well be muted.  Prices may therefore show a degree of resilience to any downward pressure, ending the week very close to where they are now.                                                                                                                            maw

Weekly Market Report – 03 October 2020

Weekly Market Report – 03 October 2020

Coffee prices were extremely volatile this week initially reflecting the squaring-off of positions by a number of speculative hedge funds ahead of the new coffee year, but later in the week as a result of a negative forecast concerning global demand.  There were interludes when prices tried to recover but the weight of selling was too great, and prices fell.  Arabica coffee prices lost 4.25 cents/lb over the week, while robusta lost $65/ton (2.9 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 to 35 toea/kg lower than what they were last week. 

In a presentation to the Swiss Trade Association, Rabobank analyst Carlos Mera forecast that global coffee demand will decline by 0.9% during 2020.  If true, this would be the first time that demand has dropped since 1995.  He did however, go on to say that should there be a Coronavirus vaccine he would estimate that demand may grow by 2% in 2021. Mera has estimated that Brazil’s 2020-2021 crop totalled 67.5 million bags, comprising 49 million bags of arabica and 18.5 million bags of robusta.   Interestingly, Mera believes that because of the devaluation in the Brazilian Real, which has boosted prices to Brazilian growers, together with low interest rates, Brazilian growers will expand the area they plant to coffee.  He also believes that Colombian farmers will do the same.  In its September monthly report, the ICO notes that global coffee production in 2019/20 is estimated at 169.34 million bags, 2.2% lower than last year. World coffee consumption is also put 0.5% lower at 167.81 million bags reflecting the pandemic’s impact on global GDP and on out-of-home coffee consumption. As a result, coffee year 2019/20 is seen ending in a surplus of 1.54 million bags, the second year that there has been a surplus.  The General Statistics Office of Vietnam estimate that Vietnam’s coffee exports in September should be approximately 1.67 million bags, up 8.3% from the same month last year. This would bring cumulative exports for the first nine months of the 2020 calendar year to 20.83 million bags, down 1.4% from the same period in 2019.  

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 come under pressure this week. Brazilian 3 /4’s appear to be up a couple of cents lower at around minus 15;  Honduras HG’s are also lower at plus 21;  Kenya AB FAQ’s, however, are steady at plus 75/95;  while Colombian UGQ’s are unmoved at plus 50; PNG Y1’s are  also steady at plus 9.  If an exporter had fixed a price on Friday for December/ January delivery, he should have secured a price somewhere between 116.15 and 120.95 cents/lb. 

Long range weather forecasts suggest that there should be heavy rain in Brazil next weekend continuing on into the early part of next week, but there after it looks as though the country might be in for another spell of dry weather.  Unfortunately, such long-range forecasts do tend to vary somewhat, and there is no indication whether the dry spell will last just a few days or longer.  So, at the moment, nothing is really clear. The outlook therefore continues to be uncertain and as a result prices will probably continue to be volatile, although the small but nevertheless significant recovery on Friday suggests that prices may have reached a bottom and thus might end the week slightly higher.                                                                                                                                                                         maw

Weekly Market Report – 20 September 2020

Weekly Market Report – 20 September 2020

Rain has been forecast to hit the coffee growing areas of Brazil later this week. As forewarned last week, this unfortunately started a stampede and prices collapsed.   Arabica coffee prices lost 18.95 cents/lb over the week, while robusta coffee prices, although lower, fared a lot better only losing $77/ton (3.5 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 125 to 130 toea/kg lower than they were last week.

Long-range weather forecasts for Brazil show rain hitting many coffee growing areas (but not all) later in the week to come and throughout the following week into early October.  This has allayed fears that the arabica flowering would be delayed and also suggests that the season will be relatively normal.  Adding to the downward pressure was the fact that Commitment of Traders (COT) report showed that the majority of funds were holding a 4-year record high long position, which inevitably exacerbated the stampede, especially on Monday when prices fell by more than 9 cents/lb.  In addition, it must also be said that fears of a second wave of the Covid-19 virus further reducing demand added to the bearish tone seen throughout the week.  GCA stock figures published this week would normally have been seen as bullish, but in the rush to sell, the market appears to have almost totally ignored the message they are clearly giving.  US warehouse coffee stocks totalled 6,745,336 bags at the end of August, this is 309,013 bags, or 4.4% lower than the total for July and 478,973 bags (6.6%) lower than was recorded in August 2019. The total is also below the five-year average for the month of August, which is 6,819,328 bags. One of the reasons behind the robusta market’s apparent resilience is the fact that there is very little coffee being exported by Vietnam at the moment as the country awaits the new harvest.  Furthermore, the latest data from the Vietnam Customs Department, shows that the country exported 1.67 million bags of coffee in August. This brought cumulative exports for the first eight months of the 2020 calendar year to 19.17 million bags, down 2.1% from the same period in 2019. 

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 movements in physical price differentials have been mixed this week. Given the fall in the futures markets, differentials have probably hardened but these changes may take time to be reflected in the data sources that can be accessed at the moment.  Brazilian 3 /4’s appear to be up 2 cents at around minus 14;  Honduras HG’s however, appear slightly lower at plus 23;  Kenya AB FAQ’s are higher at plus 75/95;  while Colombian UGQ’s are unmoved at plus 50; PNG Y1’s are steady at plus 9.  If an exporter had fixed a price on Friday for November/ December delivery, he should have secured a price somewhere between 122.25 and 128.35 cents/lb. 

The wave of panic selling this week was certainly overdone but given that prices fell every day of the week suggests that for the moment there is very little to be optimistic about.  The market appears to have shrugged off the fall in GCA stock figures and is probably encouraged by the fact that the decline in certified stocks is slowing down, with only a fall of 450 bags being reported this week.  Consequently, the outlook remains precarious, but there may well be bounce of some sort this week, with prices finishing the week higher, although any uptick is unlikely to recover anything more than a fraction of what was lost this week.                                                                                                                                 maw

Weekly Market Report – 13 September 2020

Weekly Market Report – 13 September 2020

As anticipated the week started off on a negative note as traders liquidated the cover they bought prior to the long weekend.  However, over the last 2 days of the week prices recovered most of the ground they lost, ending the week lower but not significantly so.  Arabica coffee prices lost 1.75 cents/lb over the week while robusta lost $11/ton (0.50 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 10 to 15 toea/kg lower than they were last week.

Part of the resilience of arabica coffee prices to downward pressure lies in the fact that certified stocks continue to fall apace and now stand at a 20-year low.  There is talk of between 300,000 to 500,000 bags of Brazilian semi-washed coffees being certified against the market over the next few months but at this stage this remains pure speculation.  Some semi-washed Brazilian arabicas have been certified recently but a lot more have failed the grading, so it remains a gamble whether holders of this coffee are prepared to take the risk.  A coffee that has failed grading can still be sold on the open market but generally tends to be sold for a bit less than it otherwise would have, plus there is the cost of grading.  Another reason for the current resilience is the continued dry weather in Brazil which although normal for this time of the year may have already started to have an impact on unirrigated robusta that has already flowered.  Long range forecast suggest that the dry weather will continue for at least the next 10 days.  IBGE (Brazil’s Institute of Geography and Statistics) has lowered its estimate of Brazil’s 2020/21 coffee crop up by 1.0% to 59.6 million bags, which would be 19.4% higher than the 2019/20 harvest. Arabica coffee, production is put at 45.0 million bags, while robusta output is put at 14.6 million bags. The latest data from CeCafe showed that Brazil exported 2.97 million bags of green coffee in August, bringing the cumulative exports for the first eight months of the 2020 calendar year to 23.7 million bags, down 3.2% from the 24.5 million bags exported during the same period in 2019. 

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 shrunk a bit this week.  Brazilian 3 /4’s are down 2 cents at around minus 16;  Honduras HG’s however, appear steady at plus 24;  Kenya AB FAQ’s are slightly lower at plus 70/85; Colombian UGQ’s are unmoved at plus 50;  but PNG Y1’s are down a cent at plus 9.  If an exporter had fixed a price on Friday for November/ December delivery, he should have secured a price somewhere between 138.30 and 141.55 cents/lb. 

The resilience shown by the arabica market last week was impressive and although there appears to be every reason to think that prices might continue to remain firm, there is a worry that speculators might start to take their profits anytime soon. Much will depend on the longer range weather forecast and indeed the US Government has confirmed the presence of the weather phenomenon known as “La Nina” and has forecast that there is a 75% chance that it will continue for the next few months.  This will reduce rainfall in Brazil.  Nevertheless, all eyes will be on the forecast for the next few weeks and any hint of rain might well start the stampede.  So the outlook is fairly precarious, although at the moment there is every reason to think that prices might remain fairly stable this week, ending up roughly where they are now.                                                                                                                                   maw

Weekly Market Report – 06 September 2020

Weekly Market Report – 06 September 2020

Another surprisingly good week for the arabica coffee market, although the exact cause is hard to pinpoint.  Continuing dry weather in Brazil appears to be one factor, although it is always dry at this time of the year in Brazil.  The continuing decline in certified stocks appears to be another.  Arabica coffee prices gained 7.65 cents/lb over the week.  Robusta prices did not fare as well, possibly reflecting the fact that the robusta market was closed on Monday, although this should not have been a factor.  Robusta prices still moved ahead but only by $15/ton (0.70 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 50 to 55 toea/kg higher than they were last week. 

The ongoing spell of dry weather in Brazil has prevented any early flowering of the arabica crop, but historically this is fairly normal and the early flowerings we have seen in previous years have been something of an abnormally.  Weather forecasters however are also predicting that the country will remain dry for the next 2 weeks but should see some rainfall by the end of the month.  At the moment therefore there is not really any significant risk to next year’s crop but if the dry weather continues into October then much will depend on when the drought breaks and how much rain falls.  Certified stocks on the New York exchange fell by a further 92,000 bags this week taking the total to the lowest level since the year 2000.  It is not yet critical however but is clearly a cause for concern. The ICO has significantly revised their forecast for the 2019/20 global coffee balance this week forecasting a 952,000-bag surplus, compared to their July forecast of a 486,000-bag deficit.  They now forecast production at 169.34 million bags, and consumption at 168.39 million bags.  They also published data on global coffee exports, which they estimate amounted to 10.61 million bags in July 2020, down 11% from July 2019.  In the 12 months ending July 2020, exports of arabica totalled 78.92 million bags compared to 83.72 million bags last year; whereas robusta exports amounted to 48.58 million bags compared to 49.59 million. 

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 been fairly stable this week.  Brazilian 3 /4’s are steady at around minus 14;  as are Honduras HG’s at plus 24;  Kenya AB FAQ’s remain quoted at plus 80/95; Colombian UGQ’s are also unmoved at plus 50;  PNG Y1’s continue at around plus 10.  If an exporter had fixed a price on Friday for November/ December delivery, he should have secured a price somewhere between 141.75 and 145.55 cents/lb. 

The arabica market in New York will be closed on Monday for the American Labour Day celebrations.  Traders may have bought some cover for the long weekend on Friday and this may have boosted prices as a result.  If so then there might well be some initial selling when the market reopens on Tuesday.  Much will also depend on whether the longer-range weather forecast for Brazil changes or not.  There is talk of semi washed Brazils being allowed to be tendered against the C contract as this would ease the problem with certified stocks, but it would further undermine the credibility of the contract.   Consequently, the week ahead has potential for the market to be fairly volatile and it is anyone’s guess which way it might go, but there is a reasonable chance that prices will cling onto most of this week’s gains.                                                                                                                  maw

Weekly Market Report – 30th August 2020

Weekly Market Report – 30th August 2020

A surprisingly good week for both markets although most of the gains took place on Friday.  The main driver appears to have been a much stronger Brazilian Real and a weaker US dollar, although concern over the continuing fall in the volume of certified stock may also have played a part.  Arabica coffee prices reached a 6-week high gaining 6.55 cents/lb while robusta coffee prices rose by $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 around 45 toea/kg higher than they were last week.

The Brazilian Real has been fairly volatile all week but the announcement that the Monetary Council of Brazil had approved a transfer of 325 billion Reais (US$58.3 billion) from the Central Bank of Brazil to the Treasury in order to ease its liquidity difficulties boosted the Real more than 2.0% on Friday. In turn this appears to have boosted prices on the New York market by around 4 cents/lb.  The cold front that hit Brazil last weekend and continued into the early part of the week was not as bad as many had feared and there were no frosts.  Indeed, the Brazilian frost season is effectively over now, although there have been a couple of minor frosts in September in Brazil during the last 50 years.  The Brazilian Coffee Industry Association (ABIC) has reported that the global COVID-19 pandemic has triggered an increase in coffee consumption throughout the country.  In March, the first month of the pandemic in Brazil, the country saw a 35% increase in consumption, and this appears to have been followed by a 20% increase in April.  Unfortunately, data for later months is not yet available.  A survey by Bloomberg published this week suggests that the 2020/21 Vietnamese crop might fall by around 4.8% to 28.7 million bags.  This is attributed to bad weather (heavy rain), a lack of reinvestment in the crop and a move by many farmers to switch out of coffee and into other more profitable crops.  Statistics published this week suggest that exports from Peru and Ecuador have fallen sharply with exports from Peru falling by just over 20% during the first 6 months of the calendar year to just below 600,000 bags.  However, Peru exports the bulk of its crop over the next 6 months so the fall, although dramatic, may not be that significant.  Ecuador’s exports have fallen by just over 7% over the same period.

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 movements in physical price differentials have been mixed this week.  Brazilian 3 /4’s are down 2 cent at around minus 14;  Honduras HG’s are also down a bit at plus 24;  Kenya AB FAQ’s however are higher at plus 80/95; Colombian UGQ’s are steady at plus 50; as are PNG Y1’s at around plus 10.  If an exporter had fixed a price on Friday for November/ December delivery, he should have secured a price somewhere between 131.55 and 136.65 cents/lb.

With certified stocks shrinking, roasters will have to switch from this relatively cheap source of coffee to that available from origin at what are historically high differentials.  In the past, such a situation caused futures market prices to rise.  While this may still be some way off, there is no doubt that the outlook is more bullish now than it has been for some time. However, keeping a lid on any price increase is the fact that Brazil will produce a bumper crop next year.  This week’s rise may provoke a downward move in the early part of next week, but there is every reason to hope that prices might end the week slightly higher.                                                                                                                   maw

 

Weekly Market Report – 23rd August 2020

Weekly Market Report – 23rd August 2020

An unexpected decrease in GCA figures together with the threat of cold weather in Brazil this weekend helped to push arabica coffee prices higher this week.  Robusta coffee prices also made ground.  Arabica prices gained 3.35 cents/lb over the week while robusta prices rose by $22/ton (1.0 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 25 toea/kg higher than they were last week.

The latest data from the Green Coffee Association (GCA), shows that coffee stocks in warehouses in all ports of the United States totalled 7,054,349 bags at the end of July.  This is 6,849 bags, or 0.9% lower than the previous month and 44,826 bags (0.6%) lower than were recorded in July 2019.  Historically GCA stock figures rise by anywhere between 150,000 and 250,000 bags during July so a drop, even such a small one, is significant.  This is especially so at the moment when the anticipation was that there would have been a substantial drop in demand which normally would have pushed stocks even higher.  Clearly the impact of the pandemic on demand in the USA is less than many people feared.  Rabobank has revised their forecast for a coffee supply surplus for the 2020/21 crop year down from their previous estimate of 7.6 million bags to 7 million bags.  The bank now sees total production for the period at 174.2 million bags, up 4% from the 167.4 million bags produced last year.  Demand is seen rising 2% from 163.8 million bags in 2019/20 to 167.1 million bags for 2020/21.  Sucden Financial, on the other hand, are more conservative and have forecast global coffee production for the 2020/21 coffee year at 169.59 million bags, which includes a record 66 million bags from Brazil.  Demand is seen at 166.5 million bags, resulting in a supply surplus of 3.09 million bags, less than half that forecast by Rabobank. Last year they forecast a 5.01 million bag deficit for 2019/20.

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 been relatively steady this week.  Brazilian 3 /4’s are down a cent at around minus 12;  Honduras HG’s are steady at plus 25/26;  Kenya AB FAQ’s are also unchanged at plus 70/90; likewise Colombian UGQ’s remain firm at plus 50; but PNG Y1’s, are slightly lower at around plus 10.  If an exporter had fixed a price on Friday for November/ December delivery, he should have secured a price somewhere between 126.05 and 130.40 cents/lb.

In its latest report ABN Amro stated that it believes that any gains in the arabica market will be only temporary and forecast that arabica prices at the end of 2020 will be around 111 cents/lb.  Although the weather forecasters have confidently predicted that the cold front hitting Brazil this weekend and into the early part of next week will not produce a frost, others are not so sure.  Temperatures are predicted to fall near freezing in some areas in the south of Minas Gerais this weekend, so some sort of frost, even if it is not a damaging one, is certainly possible.  Nevertheless, at the time of writing no frost has been reported.  Even so, the outlook appears to be relatively bright with the index funds and speculators adding to their long positions and reducing their short position over the last 2 weeks, so they clearly believe that there is greater upside potential.  There, therefore, appears to be a good chance that prices might advance a little further this week, although probably not by much.

maw

 

Weekly Market Report – 16th August 2020

Weekly Market Report – 16th August 2020

It had all the hallmarks of being a very bad week for both markets with prices falling heavily throughout the first half of the week.  The outlook however changed with the publication of a report that significantly increased the probability of a La Nina weather phenomenon occurring over the next few months. This coupled with a devaluing dollar helped to reverse the downward trend, but unfortunately it was not enough with arabica coffee prices losing 1.45 cents/lb.   Robusta coffee prices, however rose by $21/ton (0.95 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 10 toea/kg lower than they were last week.

According to the latest forecast from NOAA and the Climate Prediction Centre of the US, there is now a 60% chance of La Niña developing over the next 6 months, up from the 50% chance that was forecast last month.  A La Niña is associated with irregular rainfall in Brazil possibly impacting the upcoming arabica coffee flowering (although flowering has begun in some robusta producing areas), heavier than usual rainfall in Vietnam, Indonesia and possibly in PNG and drier weather or even drought in other arabica coffee producing countries. There have been good rains in Vietnam over the last couple of weeks which has been beneficial for the development of the crop but if the rain continues into the 4th quarter of the year then it will not only hamper the harvest, but will also impact the quality of the coffee being picked. The latest data from the Brazil’s CeCafe showed that Brazil exported 2.7 million bags of green coffee in July, down 11% from the 3 million bags exported last July.  Arabica coffee exports totalled 2.3 million bags, down 7.4% from the 2.4 million bags exported last July, while robusta exports totalled 446,426 bags, down 25.8%.  This brought cumulative exports for the first seven months of the 2020 calendar year to 20.6 million bags, down 4.1%, arabica exports are down 5.4%, but robusta exports are up 15% at 2.6 million bags.  Stocks certified against the New York exchange continue to fall sharply as roasters find such stocks more attractively priced than fresh coffee from origin which come with a high price differential.  Over the week the total fell by just over 78,000 bags to 1.390 million bags.

Once again there have not been any formal reports from Traders this week, but other sources of data (which I need to stress are not as reliable) suggest that physical price differentials are a bit lower again this week.  Brazilian 3 /4’s are down a cent at around minus 11;  Honduras HG’s are also slightly lower at plus 25/26;  Kenya AB FAQ’s continue to be quoted at plus 70/90; likewise Colombian UGQ’s remain firm at plus 50; PNG Y1’s, are slightly lower at around plus 10/11.  If an exporter had fixed a price on Friday for November/ December delivery, he should have secured a price somewhere between 126.20 and 131.00 cents/lb.

GCA stock figures will be published on Monday and while the market would normally be expecting a rise of between 200,000 bags to 250,000 bags, there are a number of uncertainties this year in view of the possible impact that the pandemic has had on demand.  Some analysts expect much higher figures while others remain unsure.  If significantly less, then prices will rise, but if more then there is a good chance that prices might continue to fall.  However, while the resilient shown by the market to downward pressure this week was reasonably strong, it is difficult to say whether this will continue into next week.  With luck prices will remain very close to where they are now, but the signs suggest that prices might fall further..                                                                                                                                maw