Weekly Market Report 02nd July 2023

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Weekly Market Report 02nd July 2023

Although the week started off quietly and prices did stage a small recovery on Tuesday, the negative tone set last week reasserted itself and prices continued their downward journey.  As a result, arabica coffee prices lost a further 5.85 cents/lb with the second position for arabica closing the week at 159.00.  It was even worse for robusta coffee prices where profit taking pushed prices sharply down to lose $185/ton (8.40 cents/lb) over the week.  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 lower than what they were last week.

There can be little doubt that the collapse in arabica coffee prices can be put down to favourable weather conditions in Brazil, which is not only aiding the harvest, but is also seen as being beneficial for the early development of the new crop.  The latest survey from Cooxupe, a very large Brazilian cooperative, suggests that the harvest is now 27.84% complete in the areas where the cooperative operates.  This is more advanced than the pace of last year, when only 19.16% of the harvest was completed by this time.  A weaker dollar and concerns about stuttering global economic growth and weak demand from China also took their toll.  According to the FNC Colombia’s coffee production fell 21% in May to 806,000 bags, down from 1.017 million bags in the same period last year, but higher than the 566,000 bags recorded in April.  In the 12-months from June to May the country’s output only reached 10.671 million bags, down 14% from that produced in the same period a year earlier.  The new General Manager of the FNC, German Bahamon, said this week that they will revise a policy adopted in 2015 that allowed the export of low-grade coffee.  He stated that allowing the export of such low-quality beans had been responsible for the sharp drop in premiums paid for higher quality Colombian coffee and that banning the export of such coffee should have a positive effect.  The latest data from the All Japan Coffee Association showed that green coffee stocks totalled 2.38 million bags at the end of May, 2.5% higher than in April but 25.7% lower than at the end of May 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.  Despite the falls seen in futures prices over the past 2 weeks, physical price differentials appear to have weakened.  Brazilian 3/4’s are slightly lower at minus 15; Honduras HG’s are also down at plus 16; Kenya AB FAQ’s, however are still quoted at between plus 45 and plus 70; but Colombian UGQ’s are much lower at around plus 38.  Without any update on PNG Y1’s, I would guess that they might be lower around plus 4, but this remains just a guess. Therefore, had an exporter fixed on Friday in New York for Sept/Oct delivery he may have been able to secure a price between 162.25 cents/lb and 167.50 cents/lb.

According to the weather forecasts there is very little chance of a frost in Brazil over the next 10 days and it should also stay relatively dry, which will be beneficial for the harvest.  The outlook therefore looks distinctly bearish but having lost over 23 cents/b over the last 2 weeks, the market well pause this week in order to reassess and adjust to current price levels.  There is therefore a good chance that arabica coffee prices might stabilise and there is a very slim chance that prices might even appreciate a bit over the week.                                                                                                                                                                                           

Source:
Mick Wheeler, UK.

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