A strange week in which both markets meandered downwards for most of the week, until Friday when both markets reversed the earlier losses and shot upwards. It is difficult to pinpoint why there was a sudden change in sentiment but concerns over immediate availability plus a small increase in the long position by speculators may have played a small part in the spike. It may also have been response to the fact that cocoa prices have reached a record high as a result of concerns about dry weather in Brazil. Arabica coffee prices finished the week gaining just 2.50 cents/lb with the second position (May 24) closing at 191.50 cents/lb. The London robusta coffee market may have been the driver in the sudden change of direction as it gained $101/ton (4.60 cents/lb) all of which it gained on Friday. In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea next week will probably be about 20 toea/kg higher than what they were last week.
The Commitment of Traders report showed that Non-Commercials (Speculators) increased their long position by 636 lots to 56,425 lots long, while at the same time they decreased their short position by 194 lots to 21,485 lots short, resulting in a net long position of 34,940 lots in the week to February 9th. Once again these are not big movements but do show that speculators believe that prices are more likely to go up than down in future. The latest data from the Brazil Coffee Export Association (CeCafe) showed that Brazil exported 3.67 million bags of green coffee in January, up 45.5% from the 2.5 million bags exported during the same month last year. Arabica exports totalled 3.2 million bags, up 31%, while robusta exports totalled 457,787 bags, five times higher than what they exported in the same month last year This brought cumulative exports for the first seven months of Brazil’s July to August coffee year to 24.9 million bags, up 24.3% on last year’s exports.
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 appear to be slightly weaker this week, but the situation is mixed. Brazilian 3/4’s are slightly lower at minus 12; as are Honduras HG’s at plus 7; Kenya AB FAQ’s are slightly higher at between plus 60 and plus 80; as are Colombian UGQ’s at plus 14. So, without any update on PNG Y1’s, I would guess that they might be unchanged at around minus 2/3. Therefore, had an exporter fixed on Friday in New York for May delivery he may have been able to secure a price somewhere between 184.55 cents/lb and 190.10 cents/lb.
With Vietnamese growers enjoying the Tet holiday and Brazilian grower enjoying carnival, it will probably be a very quiet start to the week. Although it is dry in the cocoa growing regions of Brazil, there have been good rain throughout all coffee growing regions of the country and the forecasts all suggest that this will continue for at least the next 10 days. Consequently, it is a very mixed picture, and the future outlook is equally murky. Some encouragement is warranted following Friday’s sharp move upwards but given that the reasons for the increase could easily have been technical rather than because of a change in fundamentals, there is a need for caution. With luck both markets may make further upward gains next week but on balance given that both markets will continue to be very volatile, it seems safer to predict that once again both markets will probably end the week remaining very close to where they are now.
Source:
Mick Wheeler, UK.