A week of opposing forces which inevitably created significant volatility. The week started off on a very negative note with values dipping sharply, but the threat of a frost in coffee growing areas of Brazil next week sent prices soaring back upwards. It was however very short-lived with speculation that the USDA forecast to be published in June would predict a much higher global crop than other sources sent prices crashing again. Over the week arabica coffee prices lost 6.90 cents/lb while robusta prices fell by $43/ton (1.95 cents/lb). In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea next week, will probably be between 50 and 55 toea/kg lower than what they were last week.
Warnings of a cold front hitting Brazil on the 17th May possibly forcing temperatures below zero sent prices on the New York shooting up by over 16 cents/lb on Wednesday. Frosts have been recorded in Brazil in May before but it is a fairly rare occurrence for a frost to hit this early but it does suggest that it may well be a very cold winter in Brazil this year. Indeed long range forecast suggest that there is an increased risk of frost for the upcoming winter. This attributed to a weakening La Niña and relatively low solar activity which when combined increase the chance of intense cold in central and southern Brazil between mid-May and mid-June. As for the chance of a frost next week it needs to be said that different forecasters using different models suggest different outcomes. However what is not in dispute is that it will get cold, so the market remains nervous. Speculation over what the USDA might forecast is a little premature in that they have only publish a few attaché reports and to be frank it is difficult to suggest that just because the early reports suggests small increase in those countries, that it will apply to all producers. Indeed Colombia’s output looks set to fall. In their latest forecast, Brazil’s IBGE forecast the country’s 2022 coffee crop at 54.9 million bags, a decline of 2.1% compared to the previous month but still 12% higher than the 2021 crop.
I still cannot get access to any reliable regularly-published data on price differentials, so once again I have had to use sources, the accuracy of which cannot be guaranteed. Despite the volatility physical price differentials appear to have been steady over the week with Brazilian 3/4’s remaining at minus 13/14; Honduras HG’s are steady at plus 36; as are Kenya AB FAQ’s at between plus 65 and plus 90; Colombian UGQ’s are however slightly lower at plus 67. Without any update on PNG Y1’s, I would guess that they might also be steady at plus 3/ 4, but this remains just a guess. Therefore, had an exporter fixed on Friday in New York for July/August delivery he may have been able to secure a price between 212.65 cents/lb and 219.85 cents/lb.
The outlook clearly depends on what happens in the latter half of the week to come. Temperatures are forecast to be low on both Wednesday and Thursday nights especially in Minas Gerais and Parana, although Parana is not as important in coffee terms as it once was. Consequently prices will be volatile with significant gains should there be a frost or significant losses should there be none. Nevertheless to have a frost scare this early is unusual so losses may be more muted. It is almost impossible to make a sensible prediction other than it will be a roller coaster ride for both markets this week. maw
