Although it was anticipated that prices would continue to rise this week, the jump seen was, in all honesty, above expectations. There was a combination of both macro and technical factors which played a part in this week’s rally, including a cut in the ICO’s forecast of global production and reports of continuing dry weather across Brazil. Arabica coffee prices gained 11.45 cents/lb over the week while robusta coffee prices rose by $83/ton (3.75 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 around 85 to 90 toea/kg higher than what they were last week.

Probably the major factor behind the rally has been the continuing dry weather in Brazil which is affecting a number of other commodities grown in Brazil, most notably sugar and corn, the prices of which have also risen sharply. The other piece in this week’s jigsaw was the report from the ICO which estimated that cumulative global exports from April 2020 to March 2021 totalled 129.5 million bags, a 1% decrease compared with the 130.8 million bags recorded from April 2019 to March 2020. World consumption for coffee year 2020/21 is projected at 166.3 million bags, an increase of 1.3% on its level of 164.2 million bags in coffee year 2019/20. The ICO has also revised its production estimate for the current coffee year downwards, owing to Brazil’s smaller 2021/22 arabica crop. Nevertheless, world consumption is forecast to remain at 2% below total production of 169.6 million bags in coffee year 2020/21. The overall bullish sentiment was also helped by ongoing social unrest in Colombia, which has seen roads blocked and violent lootings, including one against a truck loaded with coffee. Colombian Pacific ports have been blocked since April 27 in protest against a tax reform which has since been repealed. The violent clashes left 19 people dead and more than 800 were wounded in clashes during days of anti-government demonstrations. Macro factors which also played a part in this week’s rise were the strengthening of the Brazilian Real against the US dollar, indications that the American Federal Reserve will not be raising interest levels anytime soon, and a general improvement in the outlook for world trade with a report suggesting that Chinese demand is back to pre-pandemic levels.

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. Physical coffee price differentials usually come under pressure when futures prices rise, but this does not appear to have happened this week and most have actually strengthened. This, however, may only be temporary. Brazilian 3 /4’s, appear to be up sharply at around minus 20; Honduras HG’s are also higher at plus 22; Kenya AB FAQ’s, however appear steady at plus 100/110; Colombian UGQ’s may also be slightly higher at plus 51; but PNG Y1’s continue to appear to be unmoved at plus 8. If an exporter had fixed a price on Friday for August/September delivery, he should have secured a price somewhere between 159.25 and 164.00 cents/lb.

Prices did dip a bit on Friday which is to be expected as speculators will have taken their profit, but the retracement was not particularly large and suggests that the rally is far from over. The dry weather in Brazil looks set to continue and without a significant change in the forecast, the prospects for the crop will continue to shrink. The outlook therefore remains quite positive and thus prices should continue to rise, although somewhat less than last week.