The week started off on a positive note with values rising sharply, but thereafter it was all downhill, on concerns about inflation and stunted global economic growth. Arabica coffee prices slumped 7.80 cents/lb over the week having risen by over 5.0 cents/lb on Monday. The robusta market on the other hand ploughed its own path taking little notice of what was happening in New York and finished the week $3/ton (0.10 cents/lb) higher. In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea next week will probably be between 55 and 60 toea/kg lower than what they were last week.
Probably the main reason why arabica prices fell this week was the realisation that the lack of progress in Ukraine-Russia peace talks will ultimately have a very negative impact on the global economy, and therefore on coffee consumption. The outlook was also not helped by a report from Fitch Solutions which downgraded Latin America’s 2022 growth forecast to 2% from 2.2% this week. In addition COVID lockdown measures in Shanghai and elsewhere in China will inevitably cause freight problems over the next few weeks with a reported 300 ships waiting outside Shanghai to be unloaded and loaded. Prices were also affected by currency fluctuations with Brazil’s Real weaker over the week, although other Latin American currencies were slightly stronger, as was the US dollar. According to data from the monthly statistical report of the Brazil’s Cecafé, coffee exports totalled 3.622 million bags in March, 6% lower than in March 2021. Over the first quarter of 2022, exports reached 10.594 million bags, 7.8% lower than in the same quarter last year. The authorities in Honduras have lowered their forecast of exports for the current 2021/22 crop to between 4.6 and 4.9 million bags, this would be 20% lower when compared to the 5.8 million bags exported in 2020/21. It is not clear why there has been a fall in output but poor weather, COVID related issues and a lack of maintenance are all thought to be contributing factors. Lavazza reported this week that its revenues in 2021 were up 11% on 2020, primarily as a result of a recovery in the Out-Of-Home market, which for Lavazza is now back to 80% of its 2019 values.
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. Once again coffee price differentials continue to be relatively steady. Brazilian 3/4’s are slightly higher at minus 15; but Honduras HG’s are steady at plus 33; Kenya AB FAQ’s remain at between plus 75 and plus 100; while Colombian UGQ’s appear to be unmoved at plus 66. Without any update on PNG Y1’s, I would guess that they might also be steady at around plus 2/3. Therefore, had an exporter fixed on Thursday in New York for July/August delivery he may have been able to secure a price between 222.90 cents/lb and 229.65 cents/lb.
The fall this week was certainly unexpected, although the fact that the markets remain very volatile was not. Whilst it is understandable that both markets remain very nervous about what is going on in the Russian/Ukraine war, it had been thought that its impact on consumption had already been factored into the prices, but obviously not. Also, the fact that the price dropped before the long weekend does not auger well as traders usually like to take out some insurance prior to any long weekend. Consequently, the markets appear to be at a crossroads and the outlook is rather uncertain. Even so prices can be expected to stabilize and with luck may even recover some lost ground next week. maw