Another rough week for coffee prices although there are signs that maybe a new base has now been found. Arabica coffee prices lost 3.55 cents/lb over the week but were at one stage over 9.3 cents/lb lower. There was a strong rebound on Thursday resulting from a weaker dollar, although Friday turned out to be a very quiet day only seeing a very small increase. Robusta coffee prices lost $33/ton (1.10 cents/lb). 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 lower than what they were last week.
Speaking at the Sintercafe meeting this week Carlos Mera of Rabobank forecast a surplus of 3 to 5 million bags in 2023/24. However, in a rather mixed message he also said that output in Brazil and Vietnam would be lower next year, but higher in Colombia, suggesting that other origins will produce a lot more. The bank estimates that Brazil produced 40.1 bags of arabica (down 24%) but a record 23.1 million bags of robusta this year. However, he went onto say that demand was a lot weaker than many had expected and that it would be further damaged by high inflation. The massive drop in prices over the past four weeks has prompted a rush of coffee deliveries to be certified against the C Contract. At the beginning of the week the volume of certified stocks totalled 371,966 bags, with 171,565 bags awaiting grading. By the end of this week, the total volume of certified stocks totalled 454,056 bags a rise of over 82,000 bags but the volume awaiting certification has grown to 456,133 bags arise of 284,368 bags. Whilst much of this coffee will be old coffee awaiting regrading (there is little value to origins to deliver coffee given the size of the differentials available to them at the moment) the fact that there is so much coffee available for resubmission means that there is a need to re-evaluate the reasons behind the previous reductions. It was thought that roasters were taking this coffee as it was a cheaper source than buying direct from origin but that assumption now looks to be wrong and suggests that traders took delivery rather than roll over their positions. This suggests that demand is a lot weaker than previously thought.
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 are a bit higher in the face of falling Futures prices. Brazilian 3/4’s are higher at minus 11; Honduras HG’s are also higher at plus 38; but Kenya AB FAQ’s are unmoved at between at plus 75 and plus 90; as are Colombian UGQ’s at plus 68. Without any update on PNG Y1’s, I would guess (and it is just a guess) that they might also steady at around plus 4. Therefore, had an exporter fixed on Friday in New York for March/April delivery he may have been able to secure a price between 170.05 cents/lb and 175.45 cents/lb.
The market seems to have stabilised at around current levels but it would be wrong to assume that the bearish overtone has now been vanquished. It has not and the huge rise in certified stocks suggests that market players will see this as strong sign that demand remains under pressure. With inflation topping 10% in many European countries and at around 8% in the US there is every reason to believe that consumption will continue to struggle to rebound from the dip caused by the pandemic. The evidence to support such a hypothesis is patchy at best and it could just be that consumers have switched to consuming more in-home. Consequently, the outlook remains uncertain, but prices may recover a bit next week.
Source:
Mick Wheeler, UK.