Weekly Market Report 01st October 2023

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Weekly Market Report 01st October 2023

Arabica coffee prices continued their downward path this week, although there was a small rally on Tuesday which limited the losses.  Forecasts of widespread rain throughout Brazil’s coffee belt, together with a stronger dollar were among the reasons cited for the decline.  Arabica coffee prices lost 5.05 cents/lb with the second position (March 24) closing at 147.20 cents/lb.  The robusta market on the other hand was really quiet throughout the week with prices barely moving from day to day and ended the week at the same level as when it started the week.  In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea next week, will probably be about 40 toea/kg lower than last week.

Although the weather forecast suggests that there will be widespread rain next week in Brazil, the longer-term weather outlook remains somewhat precarious.  The latest outlook from Australia’s Bureau of Meteorology (BOM) indicates that the El Niño weather phenomenon is now firmly established.  Indeed, they report that Central and Eastern Pacific Sea surface temperatures (SSTs) are significantly above El Niño thresholds suggesting that the El Niño will only get stronger.  El Niño is associated with much drier weather in Brazil, so while rain may well fall next week, there are no guarantees that it will continue thereafter.  This has not however deterred some analysts from suggesting that next year’s crop in Brazil will be very similar to that achieved this year.  This is however pure speculation for until a proper assessment of the flowering is made, possibly in a few weeks’ time, there is absolutely no way of telling how large the crop will be.  There are simply too many variables to take into account. The latest official customs data for Cote d’Ivoire showed that the country exported just 345,866 bags in the first seven months of the 2023 calendar year. This is 17% lower than over the same period in 2022.  The latest data from the All Japan Coffee Association showed that green coffee stocks totalled 2.49 million bags at the end of August up 2.3% on the total in July but almost 17% lower than in August last 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 but appear to have strengthened as the market falls. Brazilian 3/4’s are higher at minus 11; similarly, Honduras HG’s, are up at around plus 13; Kenya AB FAQ’s, are unchanged at between plus 60 and plus 75; while Colombian UGQ’s are steady at plus 26.  Without any update on PNG Y1’s, I would guess that they might be trading higher at around plus 3, but this remains just a guess. Therefore, had an exporter fixed on Friday in New York for January/ February delivery he may have been able to secure a price between 149.05 cents/lb and 151.60 cents/lb.

It looks fairly certain that it is going to rain next week in Brazil, but much will depend upon how widespread it is and how much falls.  The forecasts suggest that most areas will receive some rain with the main coffee growing states receiving significant amounts. This will put pressure on prices but as we saw this week market participants are not sure about the longer-term outlook.  In addition, economic data emanating from America suggests that the macro-economic outlook is starting to improve, although things still remain dire.  So, although it looks almost certain that prices will fall, possibly significantly, but there is a chance that any losses will be limited by doubts over the longer-term outlook.                                                                                                                                            

Mick Wheeler, UK.

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