Both coffee markets started the week off on a positive note although the London robusta market was closed on Monday. However, despite the good start arabica coffee prices fell later in the week as currency movements made it very attractive for Brazilian exporters and growers to sell. Robusta coffee prices, on the other hand, continued their upward momentum on the back of poor production forecasts for the upcoming crop in Vietnam. Arabica coffee prices finished the week 3.25 cents/lb lower, with the second position (December 24) closing at 244.05 cents/lb, while robusta prices gained US$216/ton (9.80 cents/lb). In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea next week will probably be between 20 and 25 toea/kg lower than they were last week.
Weather has been the dominant factor this week with dry conditions being reported for both Brazil and Vietnam. Dry weather in Brazil is not unusual for this time of the year although the forecasts see very little rain for at least the next couple of weeks. Furthermore, there is genuine concern that the lower-than-normal rainfall over the last four months combined with temperature extremes, both high and low, in some areas have put the trees under stress, but it is still too early to verify this. Indeed, much will depend on the next few weeks for it could become critical if the dry and hot weather extends into late September as this will affect the upcoming flowering. The dry weather in Vietnam appears to be more significant with various analysts predicting that the crop could fall substantially, with the lowest forecasts suggesting that the crop could be as low as 22.5 million bags, although most think it will be higher than this. But anything below 27 million bags will be critical and certainly would justify the exceptionally high robusta prices we are seeing at the moment.
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. Physical price differentials appear to have come under a bit of pressure this week, but most movements have been relatively small. Brazilian 3/4’s are down a cent to be quoted at minus 16; Honduras HG’s, remain at plus 10; likewise, Kenya AB FAQ’s, remain at between plus 35 and plus 50; while Colombian UGQ’s are lower at plus 13. So, my best guess for PNG Y1’s (and it is only a guess) is that they are probably slightly lower at around minus 6/7. Thus, had an exporter fixed on Friday in New York for December delivery he may have been able to secure a price somewhere between 236.55 cents/lb and 246.10 cents/lb.
There is virtually no rain forecast for coffee growing areas of Brazil for at least the next two weeks, although temperatures forecast suggest that it will not be too hot. The latest Commitment of Traders’ report suggests that the funds remain long, but their position is not drastically different from what it was last week. The sell off in arabica coffee market seen towards the end of the week was down to weakness of the Brazilian Real against the Dollar although the Dollar itself is weak against most other currencies. So, the outlook is rather uncertain. Robusta coffee prices look set to test new highs and this may well drag arabica coffee values up along with it, but this is by no means a given. Consequently, my best guess is that both markets will be fairly volatile throughout the week but should finish next week higher, although once again robusta will probably outperform arabica.
Source:
Mick Wheeler, UK.