As expected, there was a sharp reversal of last Friday’s gains on Monday when it was realised that the upcoming cold snap in Brazil would not produce a frost. Indeed, the updated forecasts suggested that temperatures would be even slightly higher than were predicted last week. Thereafter coffee prices on the arabica market continued to drift downwards reflecting movements in currencies rather than anything fundamental. Arabica coffee prices ended the week down 5.20 cents/lb, with the second position for arabica closing at 182.85 cents/lb. The robusta market was again closed on Monday for the Coronation bank holiday, but thereafter followed its own path, ending the week gaining $23/ton (1.05 cents/lb). In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea next week will probably be about 40 to 45 toea/kg lower than they were last week.
A small part of the decline seen this week can probably be attributed to the improved economic outlook in America with news that the annual inflation rate in the US fell to 4.9% in April 2023, the lowest it has been since April 2021, and below (albeit just) market forecasts of 5%. The latest data from the Brazil’s CeCafe shows that Brazil exported 2.4 million bags of green coffee in April, down 13.8% from the 2.8 million bags exported during the same month last year. Arabica exports totalled 2.3 million bags, down 13.8%, while robusta exports amounted to 123,356 bags, down 13.6%. Since the start of the 2023 calendar year, total exports from Brazil now total 9.8 million bags, down 21.9% from that exported during the same period in 2022. The latest data from the Vietnamese Authorities showed that the country exported 2.73 million bags in April, down 22.2% from what the country exported in March, although figures for first seven months of the current coffee year (Oct 22 to Sept 23) are 6.8% higher than for the same 7-month period last coffee year. Honduras has also reported that its coffee exports for the 7 months of the current coffee year are higher, up 8.1% over the same period last year to 3.96 million bags. Illycaffe reported this week that the company’s consolidated revenue grew by 13.2% during the first quarter of the year thanks to solid organic growth across all the main markets and distribution channels.
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. Despite the fall in futures prices, physical price differentials have come under pressure this week with Brazilian 3/4’s losing 2 cents to be quoted at minus 7, Honduras HG’s have also fallen by a further cent to be quoted at plus 18; Kenya AB FAQ’s however are steady at between plus 45 and plus 70; as are Colombian UGQ’s at plus 44. For PNG Y1’s, I can only guess that they maybe steady at around plus 8. Therefore, had an exporter fixed on Friday in New York for July/August delivery he may have been able to secure a price between 188.60 cents/lb and 192.40 cents/lb.
The outlook is somewhat difficult to foresee at the moment, but with dry weather forecast for most coffee growing areas in Brazil for the next 2 weeks, which will help speed up the harvest, there is a very good chance that prices will remain under pressure. Nevertheless, the overall supply/demand balance for the year remains negative, which should counteract any downward pressure but will not negate it. Thus, while prices will probably be lower next week, they should not be significantly lower and may even stay close to where they are now.
Source:
Mick Wheeler, UK.