We had a good old-fashioned frost scare this week with prices initially jumping up over 17 cents/lb on Tuesday and Wednesday when kit looked as though there would a serious frost in some areas of Brazil, only to lose most of it over the next 2 days when it became apparent that the scare was overblown. Nevertheless, despite a big drop on Monday coffee prices on both markets ended the week slightly higher with arabica coffee prices gaining 1.10 cents/lb over the week with the second position (December 24) closing at 230.25 cents/lb, while robusta prices were up US$35/ton (1.70 cents/lb). In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea next week will probably be about 5 to 10 toea/kg higher than they were last week.
The frost scare seen this week was relatively late in the season although frost have been witnessed in Brazil during August before, so it certainly was not out of the question. However, since the big frost in 1975 the bulk of the coffee growing areas have moved north and thus out of the traditional danger zone. Drought is probably a bigger threat to the industry today than frosts, but the volatility seen this week is proof that a frost could still be devastating especially when things are so tight with the supply/demand balance. The harvest is now estimated to be around 95% complete but producers there are continuing to report that the beans of both arabica and conillon are smaller than in previous years. Nevertheless, this has not stopped or had any impact on Brazilian coffee exports which preliminary data released this week suggests that the country exported 3.371 million bags of coffee in July, an increase of 44% from the same month last year. Interesting early export data from Vietnam suggests that the country exported 1.283 million bags in July, an increase of almost 10% over June’s exports. However, cumulative exports for the first ten months of the current Oct23/Sept 24 coffee year total 22.224 million bags, down 12.5% on the same period last year.
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 firmer this week, with Brazilian 3/4’s quoted at minus 15; Honduras HG’s, remain at plus 10; Kenya AB FAQ’s, appear to slightly higher at between plus 35 and plus 50; Colombian UGQ’s are also slightly higher at plus 14. So, my best guess for PNG Y1’s is that they are probably also slightly higher at around minus 6. Thus, had an exporter fixed on Friday in New York for November/December delivery he may have been able to secure a price somewhere between 222.1 cents/lb and 234.00 cents/lb.
The downward momentum seen towards the end of the week does not auger well for coffee prices next week. Continuing reports of small beans being harvested in Brazil might temper the downward slide but given that we not seen any major revisions to output forecasts yet, this may well be a forlorn hope. Imports into America during June were 3% higher than last year and also 3% higher for the first 6 months of 2024, so it appears that the higher prices are not having a significant impact on demand there, but again this alone is unlikely to be enough to counter the bearish overtones. The outlook is therefore far from encouraging and it looks highly likely that prices will finish the week to come lower, although the cold front which is centred on Parana this weekend might still throw up some surprises.
Source:
Mick Wheeler, UK.