Well, the week started off positively moving upwards aggressively, but then sentiment changed and prices tumbled throughout the latter half of the week. Both markets remained in positive territory, but the gains looked too good to be missed and speculators took their profit. Arabica coffee prices finished the week 2.95 cents/lb higher while robusta gained $40/ton (1.85 cents/lb). In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea over the week to come will probably be around 20 to 25 toea/kg higher than what they were last week.
Although profit taking at the month’s end played a major part in the turnaround this week, weaker Latin American currencies and a stronger US dollar also played a significant part. The Brazilian Real fell as a result of poor employment data while the Colombian Peso fell as a result of tax reform. CommerzBank joined the growing list of analysts predicting that the Brazilian crop will be significantly lower as a result of the dry weather seen earlier in the year and over the last few weeks. This was reinforced by the fact that another major export crop of Brazil, sugar, rose to a 4-year high on concerns of a significant fall in output as a result of the dry weather. There has been another drug related massacre on a coffee farm in Colombia this week where 5 pickers were slaughtered. There are fears that the continuation of this violence will deter pickers from harvesting the crop in those regions where security is seen as a serious concern. In addition, there has been social unrest in Colombia as a result of the tax reform and agricultural workers have blocked a number of highways, some of which lead to the port of Buenaventura delaying shipments of coffee. Of some concern are the reports that new more aggressive variant strains of rust had been detected in Colombia. Many of the new rust resistant varieties of coffee trees that have been promoted throughout the country are continuing to show some resistance to these newer strains, but older coffee varieties are not.
I still cannot get access to any reliable regularly-published data on coffee price differentials, so once again I have had to use sources, the accuracy of which cannot be guaranteed. These other sources suggest that physical price differentials may have come under some pressure this week, but any movement has been far from uniform. Brazilian 3 /4’s, appear to be lower at around minus 24; Honduras HG’s appear steady at plus 20; as are Kenya AB FAQ’s at plus 100/110; Colombian UGQ’s may be slightly lower at plus 50; but PNG Y1’s appear to be unmoved at plus 8, possibly reflecting the lack of quotes usual at this time of the year, but not necessarily so. If an exporter had fixed a price on Friday for August/September delivery, he should have secured a price somewhere between 151.00 and 155.65 cents/lb.
Although the retrenchment in prices seen later in the week was a disappointment, the fact that Friday was the last day of the month may have encouraged some of the major funds to capitalise any profits they had made on paper this week. Nothing fundamentally changed to bring about such a turnaround and thus there is every reason to believe that prices might resume their upward path next week. Indeed, weather forecasts for Brazil predict continuing dry weather over most of the major growing regions in Brazil next week. The London market will be closed on Monday but that should not cause any real issues, especially as the outlook for robusta is more settled, although it is getting drier in Vietnam. The outlook therefore remains quite positive and thus prices should continue to rise.