The New York market was closed on Monday and began the week on Tuesday on a positive note but profit taking on Thursday and Friday pushed prices lower. The second position (December) for arabica closed the week down 3.25 cents/lb at 148.25 cents/lb. Robusta coffee prices followed suit ending the week down $75/ton (3.40 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 about 25 toea/kg lower than they were last week.
It is difficult to pinpoint why sentiment changed mid-week, especially as other commodities such as sugar and cocoa reached 12-year highs this week. One reason might have been a report from Stone X (a Miami based coffee trader) in which it was suggested that demand for coffee is sharply down. The data they base this conclusion is pretty thin but is worrying, nevertheless. They point to shrinking exports from some of the major exporting countries (although exports overall are not sharply down) and the decline in price differentials. They admit that stocks in consuming countries are shrinking, which suggest that roasters are getting their supplies from stocks rather than imports, but they also point to the fact that the GCA no longer report stock data and the European Coffee Federation data base is shrinking. The ECF reported this week that stocks in Europe are down 15% year on year, while AJCA reported that stocks in Japan are down almost 20%. Stone X also note that demand for instant coffee is showing strong growth. So, while there are indicators which suggest that demand might be under pressure, the more likely explanation is that the cost-of-living crisis is forcing consumers to seek out cheaper coffee at the moment but that they are not necessarily drinking less.
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 price differentials this week appear slightly firmer this week, but the situation is mixed. Brazilian 3/4’s are slightly higher at minus 13; Honduras HG’s, however are steady at plus 12; Kenya AB FAQ’s, are marginally higher at between plus 50 and plus 70; but Colombian UGQ’s are ever so slightly down at plus 28. Without any update on PNG Y1’s, I would guess that they might also be slightly higher at around plus 2, but this remains just a guess as some recent quotes suggest that they may be higher than this. Therefore, had an exporter fixed on Friday in New York for November/ December delivery he may have been able to secure a price between 150.05 cents/lb and 153.15 cents/lb.
Although coffee prices have been on a downward trend for the last 2 weeks, this is typical for this time of the year. The Brazilian harvest is nearing conclusion, with the size of the crop around what was expected and no real concerns about quality. There is rain in Brazil at the moment, which augers well for the flowering, but the longer-range forecasts suggest that the country might be in for a dry spell in couple of weeks’ time. No suggestion yet how long that dry spell might be, but if it stretches into late October or later then this would not be good for next year’s crop. Despite that the immediate outlook is murky for although prices have now fallen for 2 weeks in a row, there is no doubt that over the last couple of months arabica coffee prices have been range-bound. We are now reaching some critical resistance levels, which if they hold suggests that prices might bounce back up a bit this week.
Source:
Mick Wheeler, UK.