Almost exactly as predicted arabica coffee prices bounced strongly upwards during the first half of the week only to retreat with a vengeance during the latter half. Nevertheless, both markets finished the week higher with arabica coffee prices gaining 6.05 cents/lb and robusta $39/ton (1.75 cents/lb). In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea next week, will probably be between 45 and 50 toea/kg higher than what they were last week.
All agricultural commodity markets were hit hard on Friday following a dramatic drop in the price of wheat in response to the deal struck between Russia and Ukraine regarding export of Ukrainian wheat. The bearish tone was added to by the fact that the Brazilian Real fell to a 5-month low against the dollar which inevitably encourages Brazilian farmers to sell now. The harvest in Brazil appears to be picking up pace with the latest survey from Cooxupe, Brazil’s largest coffee cooperative, showing that the harvest is now 42.78% complete as of July 18th, this is up from the 33.29% harvested last week. Dry weather conditions are helping the harvesting work, which now appears in line with the pace set last year. According to the Colombian coffee research body Cenicafe, the volume of rain that fell during in July was well below average in many coffee growing regions of the country, especially the central growing regions. Various reports suggest that as a result of higher prices consumers are turning to instant coffee. However, the data is patchy at best. Brazilian exports of soluble coffee during the first 6 months of 2022 are down 2.2% to 1.873 million bags, although internal consumption of soluble coffee is reported to be up 0.2% to 478,998 bags A similar trend is being observed in India, although exports of soluble coffee from India are up almost 6% over the first 6 months of the 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 again mixed this week. Brazilian 3/4’s are lower at minus 14; Honduras HG’s are however higher at plus 44; Kenya AB FAQ’s are also higher at between plus 85 and plus 100; while Colombian UGQ’s are also higher at plus 76. Without any update on PNG Y1’s, I would guess that they might also be slightly higher at around plus 7, but I need to emphasise that this remains just a guess. Therefore, had an exporter fixed on Friday in New York for Dec/Jan delivery he may have been able to secure a price between 208.55 cents/lb and 218.25 cents/lb.
The fact that the large drop on Friday was in mainly response to external factors suggests that there is a possibility that coffee fundamentals will reassert themselves sometime next week. Indeed, there are a number of factors which should be seen as bullish. The volume of stocks certified against the New York market continues to decline, falling a further 35,000 bags this week to total just over 705,000 bags. Another growing concern is the continuing dry weather in Brazil and how it may impact the developing 2022/23 coffee crop. Although dry weather is usual for this time of the year there is no doubt that rain is needed in the coming weeks to avoid any damage or delay to the flowering period. The outlook is therefore mixed, and the only sure thing is that both markets will be volatile, but it would not be a surprise to see further gains made during the week to come, although any gains will probably be small.
Mick Wheeler, UK