Another extremely volatile week on the arabica market as market players try to work out whether demand will continue to fall. There was a brief flurry of upward momentum midweek, but it did not last and by the close of business on Friday, arabica coffee prices had lost 2.45 cents/lb to settle at 162.80 cents/lb (Mar23). Robusta coffee prices fared much better reflecting that during times of high inflation people consume more instant coffee and cheaper blends. Over the week robusta coffee prices gained $25/ton (1.10 cents/lb). In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea next week, will probably be between 15 and 20 toea/kg lower than what they were last week
Whilst there can be doubt that consumers will cut back on their coffee consumption as inflation continues to create a cost of living crisis for many, there appears little sign that they are doing so yet. The Strauss group reported their 3rd quarter financial results this week in which they reported strong coffee sales boosting their profits with their revenue rising by 7.1%, which the company put down to coffee sales growth in Brazil and Eastern Europe. In a surprise development the General Manager of the Colombia’s FNC, Roberto Velez, resigned this week at the request of the country’s new President. The official reason given was that the President wanted someone who was close to him politically but other say that the Government is concerned by the fact that coffee growers in the country may default on around contracted forward sales of around 940,000 bags of coffee sold to the Coffee Fund worth more than US$100 million. It is estimated that some 7,000 coffee growers have breached delivery contracts of coffee so far this year. The reason for the defaults appears to be the continued heavy rain in Colombia, which looks set to hit the country’s output this year forcing production below the originally estimated 12.0 million bags.
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. Origins appear reluctant to sell at these new levels, but rather paradoxically physical price differentials appear to be weaker. Brazilian 3/4’s are lower at minus 9/10; Honduras HG’s are also lower at plus 36; Kenya AB FAQ’s are lower at between at plus 65 and plus 90; Similarly Colombian UGQ’s are down at plus 60. Without any update on PNG Y1’s, I would guess (and it is just a guess) that they might also be lower at around plus 2/3. Therefore, had an exporter fixed on Friday in New York for March/April delivery he may have been able to secure a price between 161.70 cents/lb and 167.80 cents/lb.
There are many reasons to continue to be bullish especially as most Trade Houses in Brazil are confirming that the Brazilian output in 22/23 is much smaller than expected. Also on a technical front the major funds are now holding a short position of 24,243 lots the lowest long position since March 2020. However, the funds must have been really hurt by the recent collapse with estimates of their losses ranging between $500 million and $745 million, so they will be wary of buying the market anytime soon. So the outlook continues to look precarious especially as roasters now appear to have the luxury of buying from the exchange again. Thus, the market could go either way this week but might mange a very modest gain.
Source:
Mick Wheeler, UK.