Yet another volatile week and for the second week in a row both markets rose strongly throughout the week only to drop heavily on Friday, with arabica prices losing more than 8 cents/lb. The main upward driver appears to have been concern about the immediate tightness in supply especially coming out of Vietnam but the fall on Friday appears to have been caused by a lack of active buyers amidst origin fixing. Even so, arabica coffee prices still finished the week higher, gaining 3.65 cents/lb, with the second position (September 24) closing at 224.90 cents/lb. The robusta market was equally volatile, but certainly fared better than arabica gaining US$124/ton (5.60 cents/lb) over the week. In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea next week will probably be between 25 and 30 toea/kg higher than what they were last week.
The USDA published it latest attaché report this week putting Brazil’s 2024/25 coffee crop at 69.9 million bags, 3.3 million bags or 5.4% higher than the figure they estimated for last year’s crop. Arabica output is put at 48.2 million bags (up 7.3%), while the robusta/conillon crop is forecast at 21.7 million bags, up 1.4%. This means that with the majority of these reports now published, it looks highly likely that the USDA will now lower the forecast it made in December down from 171.4 million bags to around 169 million bags. Furthermore, if the USDA consumption forecast is unchanged at 169.5 million bags, which looks probable, then this would suggest a supply surplus of about 1.9 million bags, rather than the 4.3 million bags forecast in December. Given that the USDA’s estimates of global supply are frequently over optimistic, the market is clearly starting to believe that things will remain tight next year. The J.M. Smucker Co published its results for the February-April quarter this week stating that the company’s overall net sales of all lines (not just coffee) had decreased by around 1% or $29.1 million, due mainly to currency fluctuations but a 2% increase on comparable net sales basis. Its profit from coffee sales were up by around $10.2 million and its overall gross profit for the quarter increased by 15% or $120.9 million.
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. Once again despite the volatility seen this week, physical price differentials appear to be relatively stable. Brazilian 3/4’s are steady at minus 14; Honduras HG’s remain at plus 9; while Kenya AB FAQ’s, are unmoved at between plus 40 and plus 55; Colombian UGQ’s are also steady at plus 15. Without any regular updates on PNG Y1’s I can only guess that they might also be steady at around plus 3. Therefore, had an exporter fixed on Friday in New York for October delivery he may have been able to secure a price somewhere between 226.75 cents/lb and 236.25 cents/lb.
Safras & Mercado have estimated that as of June 4th the Brazilian harvest is 29% complete. This is not surprising given that the weather in Brazil is dry and mild, without a hint of a frost for at least the next 2 weeks. However, with less and less coffee coming out of Vietnam, the market is clearly worried about immediate supplies. This concern will continue to dominate the thinking of market participants and thus the market will continue to be volatile, but it is difficult to see prices going much higher, but not impossible. Consequently, it looks reasonably probable that prices might finish the week lower, but hopefully not by much.
Source:
Mick Wheeler, UK.