An exceptionally good week for the arabica market with prices rising strongly throughout the latter half of the week on news that the extremely hot weather in Brazil was causing both cherry and flower abortion. The continuing decline in stocks certified against the New York exchange added momentum to the escalation in prices. Arabica coffee prices finished the week 16.20 cents/lb higher with the second position (March 24) closing at 184.35 cents/lb. The robusta coffee market however failed to follow suit, probably because Origins were fairly active sellers, and the new Vietnamese harvest is about to begin. Robusta coffee prices ended the week losing $17/ton (0.80 cents/lb). In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea next week will probably be between 120 and 125 toea/kg higher than they were last week.
The spot position in New York is currently trading at a 9.55 cents/lb premium over the second position emphasising the concern felt about the availability of coffee for immediate delivery. This concern is highlighted by the fact that the volume of stock certified against the New York market closed the week 66,668 bags lower at 224,066 bags. Furthermore, stock data released by the European Coffee Federation (ECF) for selected ports in Europe for September and October this week shows a similar decline. In September, coffee stocks in the designated warehouses totalled 9.3 million bags, down 33% from the total reported in September last year. In October, total coffee stocks in those warehouses were down a further 800,000 bags at 8.49 million bags, 9.4% lower than in September. The FNC have reportedly set a target of increasing Colombian production to 16 million bags by 2027, although the Government of Colombia asked coffee growers there to increase their contributions to the stabilisation fund this week by 0.002 cents/lb. Whilst this is a very small amount, growers have reacted negatively arguing that they are not covering their cost of production at current prices and cannot afford any increase. In a new study published this week, it was estimated that the coffee pods and capsules market in America will grow by 6.16% p.a. to 2027.
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, although most are showing signs of weakening. Brazilian 3/4’s are lower at minus 16; but Honduras HG’s are higher at plus 7; Kenya AB FAQ’s appear unmoved and are quoted at between plus 60 and plus 75; while Colombian UGQ’s are lower at plus 14. Without any update on PNG Y1’s, I would guess that they might also be lower at around minus 2/3, although I must stress this remains just a guess. Therefore, had an exporter fixed on Friday in New York for March delivery he may have been able to secure a price somewhere between 175.20 cents/lb and 185.50 cents/lb.
The hot weather is set to continue in Brazil, but surprisingly it is also forecast to be wet in most coffee growing areas. Difficult to know how the trees will react to such weather conditions but, if the reports are to be believed, then the chances are that this hot spell of weather will seriously damage next year’s harvest. Even so there appears to be strong resistance to prices going higher and there would have to strong evidence of damage to force prices through these resistance levels. A further large hike in prices cannot be ruled out, but given this week’s rise, it would not be a surprise to see price finish slightly lower next week.
Source:
Mick Wheeler, UK.