As anticipated arabica coffee prices retreated this week but still managed to cling on to most of what they gained the week before. The correction however, was more gradual than expected with prices being pressured initially by a strong dollar but later in the week by forecasts of light rain in southern coffee growing areas of Brazil next week. Arabica coffee prices fell by 9.30 cents/lb while robusta prices gave back virtually all that they gained the week before losing $56/ton (2.65 cents/lb). In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea next week, will probably be about 70 toea/kg lower than what they were last week.
The weather forecast for Brazil only sees light rains in southern areas which suggests that more northern areas will remain dry. The Australian BOM put the chances of a La Nina at 70%, three times greater than normal. So, the threat of a drought affecting Brazilian output has not yet gone away and much will depend on what happens over the next 4 to 5 weeks. Another bearish factor for the market during the early part of the week was the recovery in certified stocks, which briefly rose to 672,000 bags but there was a large drawdown on Friday which took the total down to 635,000 bags. This suggest that roasters still see certified stocks as a cheaper alternative to buying from the spot market. The ICO reported this week that world coffee exports totalled 10.12 million bags in July 2022, down 6.6% compared with 10.83 million bags exported in July 2021. In the 12 months Aug 21/July 22, arabica exports totalled 80.25 million bags compared with 82.99 million bags last year; while robusta exports amounted to 48.90 million bags up 2.02 million bags from last year. In their August forecast report, the USDA has upwardly revised their forecast for imports of coffee and coffee products into the US. They see the value of those imports during 2022 rise by $1.0 billion to $9.0 billion and the volume by 0.2 million bags to 28.33 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. Unsurprisingly physical price differentials appear to be lower. Brazilian 3/4’s are down a cent to minus 18; Honduras HG’s are down 3 cents at plus 39; Kenya AB FAQ’s are also lower at between plus 70 and plus 90; while Colombian UGQ’s appear unmoved at plus 74. Without any update on PNG Y1’s, I would guess (and it is just a guess) that they might also be slightly lower at around plus 4. Therefore, had an exporter fixed on Friday in New York for Dec/Jan delivery he may have been able to secure a price between 232.25 cents/lb and 238.05 cents/lb.
The outlook very much depends on the weather in Brazil and how far north it rains. Any significant rainfall will trigger another flowering, but what happens thereafter will be reliant on follow up rains. At the moment the longer-range forecasts suggest that many of the major growing areas will receive little or no rain for at least the next 2 weeks. This could easily change but all the indications suggest that the drought will continue beyond what is currently forecast. By way of contrast heavy rain in Colombia is threatening output there – so a very mixed picture. Given that this week’s decline should be viewed as a correction to the rise seen the previous week, there is a good chance that arabica coffee prices might stabilise and even creep back upwards. New York will be closed on Monday for Labor Day but that will not have any significant effect as it will have already been factored into Friday’s close.
Source:
Mick Wheeler, UK