It was a good week for both coffee markets this week, with both markets rising on the threat of a cold front moving into Brazil the week after next, the USDA forecast for Brazil, which raises questions about the robusta crop and news that the El Nino weather phenomenon is strengthening. The latter will affect coffee production in Asia but may also have some effect on output in Latin America and Africa. The second position for arabica (September) closed at 186.65 cents/lb, up 8.95 cents/lb. Robusta coffee prices also finished the week higher gaining $160/ton (7.25 cents/lb). In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea next week will probably be between 65 and 70 toea/kg higher than they were last week.
The latest USDA attaché report forecasts total Brazilian coffee production at 66.4 million bags, up 3.8 million bags on last year’s harvest. Arabica production is projected at 44.7 million bags, up12%, while robusta/conillon production is estimated at 21.7 million bags, down 5%. The report notes that rainfall has been mostly favourable in all growing regions, but the trees are still recovering from the frost and water stress caused during the 2 previous seasons. Interestingly the report highlights that the total area planted for coffee in Brazil is slightly higher at 2.51 million hectares, up just under 1% but that the number of coffee trees is put at 7.25 billion trees, a decrease of around 300 million trees. Both the Australian Bureau of Metrology and the NOAA reported this week that the chances of an El Niño forming this year have increased significantly. The Australian Bureau suggests that the chances have increased threefold while the NOAA suggests that the chances have increased to 84%. El Niño conditions lead to increased rainfall in Asia but typically creates dry and hot conditions in Central America, northern Brazil, and Colombia. The latest data from the US Commerce Department is of concern as it shows that the US imported 80,883,478 kgs of green arabica coffee in April, down 15.6% from the 95,836,799 kgs imported in May.
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 have come under a bit of pressure this week, but as always, the situation is mixed. Brazilian 3/4’s are lower at minus 12, Honduras HG’s are also lower at plus 17; but Kenya AB FAQ’s remain at between plus 45 and plus 70; while Colombian UGQ’s are steady at plus 40. I have no figures for PNG Y1’s, so can only guess that they may too be slightly lower at around plus 7/8. Therefore, had an exporter fixed on Friday in New York for Sept/Oct delivery he may have been able to secure a price between 192.10 cents/lb and 198.75 cents/lb. The weather outlook for Brazil has improved slightly since the first reports suggested that a cold front would hit the country on June 19/20, so prices will probably come under pressure early on in the week to come, but confirmation that there will be an El Niño should temper any downward pressure. The USDA report on Brazil presented a mixed picture, but this has already been absorbed by the market. The import data for the US is a surprise and a bit of a disappointment as it suggests that demand is weakening although Smuckers reported increased sales this week. So, a very mixed picture overall which suggests that prices will come under pressure, although with luck they may end the week close to where they are now.
Source:
Mick Wheeler, UK.