Weekly Market Report – 03 January 2021

As anticipated both markets finished higher this week despite it being a short trading week with a relatively low daily turnover. Profit taking at the start of the week pushed arabica coffee prices sharply down, but this merely encouraged speculators to take advantage of the lower prices and start buying. They were encouraged by the fact that there was finally some sort of agreement on Brexit and by the fact that President Trump signed the stimulus package. By the end of the trading week on Thursday, arabica coffee prices had gained 2.30 cents/lb but robusta prices only managed to move ahead by $3/ton (1.4 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 about 20 toea/kg higher than what they were last week.

Good weather in Brazil with further rain in most coffee growing areas of Brazil has certainly muddied the outlook with two clear schools of thought emerging. On the one hand there are those who believe that the earlier drought will significantly impact the upcoming crop and that no amount of rain will enable the trees to fully recover. They point to the poor flowering and more specifically to the lack of node development which they suggest might also impact the crop in 2022. Others however believe that the abundant rainfall since mid-October has enabled the trees to fully recover and that all the talk of a shortfall is just Brazilian farmers trying to push the market higher. A clearer picture will probably emerge once various crop surveys take place later this month. The General Statistics Office of Vietnam has estimated that the country’s coffee exports for the month of December should total approximately 1.42 million bags, down 54.7% from the same month last year. This would bring cumulative exports for the 2020 calendar year to 25.18 million bags, 8.8% lower than exports in 2019. The Peruvian Coffee Exporters Association has estimated that the country will export around 3.5 million bags in 2020, down from their initial estimate of 3.9 million bags. Much of the fall is attributed to the effect of Covid 19 on recruiting pickers.

Once again, I have not been able to access any formal reports from Traders this week, but other sources of data (which I cannot stress enough are not as reliable) suggest that there has, once again, been very little movement in physical price differentials this week. Brazilian 3 /4’s, appear to be steady at around minus 20; Similarly Honduras HG’s are relatively unmoved at plus 20; Kenya AB FAQ’s, continue at plus 75/90; Colombian UGQ’s are quoted at plus 49; while PNG Y1’s appear to be steady at plus 7. If an exporter had fixed a price on Thursday for April/May delivery, he should have secured a price somewhere between 134.60 and 137.90 cents/lb.

This week’s rise although anticipated is still very encouraging as it demonstrates that many market participants are of the view that the upcoming Brazilian arabica crop is going to be much smaller than has been harvested over the last couple of year. There is still the nagging doubt that the pandemic will have a longer lasting impact on demand than many fear, but the rollout of the vaccines, albeit slower than initially promised, seems to be calming worries on that front. The return to more normal trading conditions next week will inevitably bring some surprise and there will probably be much greater volatility than we have seen of late. However given the very positive overtones seen over the last two weeks there is a good chance that further advances might be seen over the week to come.

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