Weekly Coffee Market Report 31 July 2022

Very similar to last week arabica coffee prices increased during the first half of the week only to drift lower during the latter half, although the overall increase was higher than expected.  The increase can be attributed to various macro-economic factors but also to the rising concern highlighted last week about the continuing dryness in Brazil.  Arabica coffee prices gained 11.15 cents/lb and robusta $66/ton (2.95 cents/lb).  In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea next week, will probably be between 80 and 85 toea/kg higher than what they were last week.
The macro-economic factors supporting the markets this week include the falling value of the US dollar and the increasing strength of the Brazilian Real.  Official data released this week shows that consumer prices in the US have risen by nearly 12% last year and inflation may be as high as 13%. However, counteracting this has been the IMF World Economic Outlook Update report released this week which notes that the tentative recovery seen in 2021 has been followed by increasingly gloomy developments in 2022.  They point to the fact that global output shrunk in the second quarter of 2022, owing to downturns in China and Russia, while US consumer spending was less than had been expected.  Both coffee markets however have benefitted this week by concerns about the lack of rain in Brazil and in this respect the US weather NOAA, reported that the weather phenomenon La Nina is expected to increase in intensity during the autumn and early winter months of the northern hemisphere which would coincide with the flowering period for Brazil’s new crop. This could be extremely detrimental as the La Nina would bring lower rainfall volumes to the coffee growing areas of Brazil, which are already suffering low soil moisture content due to the current dry weather.
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.  The data however suggests that physical price differentials have been relatively stable this week.  Brazilian 3/4’s appear to be unmoved at minus 14; as do Honduras HG’s at plus 44; Similarly Kenya AB FAQ’s remain at between plus 85 and plus 100; but Colombian UGQ’s may be ever so slightly lower at plus 75/76.  Without any update on PNG Y1’s, I would guess that they might also be unmoved 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 215.85 cents/lb and 223.50 cents/lb.

Although the price rise seen this week was slightly larger than expected, this is not necessarily a good sign, as it suggests that market players remain unsure about what the true fundamental position is, and this can only lead to further volatility.  The concerns about the dry weather are real, but it is always dry in Brazil at this time of the year and yes it has been exceptionally dry of late, nevertheless it is still too early to say with any degree of certainty that it will affect the upcoming flowering.  There is however, no doubt that the La Nina will have an impact, but the important aspect is always the timing of the rain rather than just the amount that falls.  The outlook therefore is uncertain, and a further push upwards may well be seen during the week to come, but equally there is every chance that the markets may pause for a while.  On balance therefore, it looks reasonable to speculate that the markets will remain volatile but prices should finish the week higher, but probably not a lot higher.                                                                                                                                  

Source:
Mick Wheeler, UK.