It was a brutal week for arabica coffee prices and although it had been anticipated that prices might fall, no one expected such a collapse, with arabica coffee prices falling below the $2.00/lb level. Indeed, the cause for the collapse appears to be concern about the global macro-economic outlook, with all commodity markets coming under pressure, rather than anything specifically related to coffee. However, the arabica coffee market appears to have been one of the worse hit, losing 20.65 cents/lb or more than 10% of its’ value over the week. Robusta prices did not come under the same sort of pressure losing but still finished lower, losing just £58/ton (2.65 cents/lb). In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea next week, will probably be between 150 and 160 toea/kg lower than what they were last week.
Although normally a decline in energy prices would be seen as something positive, global investors appears to believe that it might herald a decline in both demand as well as economic activity which could well push the global economy into a deep recession. Over the week virtually all markets including global equities were trading lower and as a result the dollar continues to strengthen. It now looks fairly certain that the US Federal Reserve along with other Central Banks will have to consider a big increase in interest rates fairly soon and maybe as early as late July. Most of the coffee news this week would normally have been seen as positive. However, one big negative this week for arabica was the report from the Brazil’s CeCafe showing that Brazil exported 2.79 million bags of green coffee in June, up 0.6% from that exported during June last year. Arabica exports totalled 2.65 million bags, up 11.5%, while robusta exports only totalled 141,302 bags, down 64.5%. The latest GCA data shows that coffee stored in warehouses in all ports of America totalled 6,050623 bags at the end of June. This is 46,353bags, or 0.7% higher than the previous month and 270,623 bags (4.7%) higher from June 2021, but the increase is lower than normally seen in June each year.
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. Movements in physical price differentials have been mixed this week, almost despite the falls seen in Futures prices. Brazilian 3/4’s are lower at minus 13; Honduras HG’s are unmoved at plus 39; Kenya AB FAQ’s are higher at between plus 75 and plus 90; while Colombian UGQ’s are unmoved at plus 75. Without any update on PNG Y1’s, I would guess that they might also be unmoved at around plus 6/7, but I need to emphasise that this remains just a guess. Therefore, had an exporter fixed on Friday in New York for Nov/Dec delivery he may have been able to secure a price between 200.60 cents/lb and 208.15 cents/lb.
Coffee prices did see a moderate bounce on Friday as did most other commodity markets and there can be little doubt that the market is certainly oversold. Consequently, there is a very good chance that the correction started on Friday will continue into next week. However, having broken through the $2.00/lb psychological barrier there remains a very strong possibility that it will not be long before this barrier is tested again. With luck that will not happen next week and there must a very good chance that prices will finish next week higher, possibly much higher, but arabica coffee prices are highly unlikely to recover all that they lost this week.
Source:
Mick Wheeler, UK