An unexpectedly good week for arabica coffee prices with prices appreciating slowly throughout the week until Friday when they leapt upwards. It is difficult to pinpoint why the market reacted so positively but may have had something to do with good economic data being reported in America or it might have been technical, with the funds deciding to close out their short positions in what many see as an oversold market. Arabica coffee prices ended the week up 7.95 cents/lb with the second position (March 24) closing at 155.15 cents/lb. The robusta market, however failed to follow suit meandering up and down ending the week just $4/ton (0.20 cents/lb) higher. In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea next week will probably be between 50 and 55 toea/kg higher than they were last week.
US inflation data for August was adjusted upwards slightly this week from 1.6% to 2.0% but at the same time the number of people out of a job in America fell sharply auguring well for a pick-up in US economic activity. The latest CFTC report issued last week, shows that speculators and the managed funds increased their net short position by 6,110 lots to 22,410 lots. Although this figure is not very high, this increase clearly made many of these players realise that they would be very vulnerable should a major correction upwards take place, so it is thought that this may have encouraged many of them to start reducing their positions and may well have given rise to the increase in prices seen on Friday. The latest data from the Brazil Coffee Export Association (CeCafe) showed that Brazil exported 3 million bags of green coffee in September, down 4.3% from the same month last year. Arabica exports totalled 2.4 million bags, down 20% on that exported in September 2022, but robusta exports totalled 624,999 bags, significantly higher than the 149,757 bags exported in the same month last year. Concern is being expressed about Colombia’s second half or fly coffee crop which many growers feel will be seriously affected by the spread of coffee berry borer or broca which appears to have been prompted by the high temperatures the country has been experiencing over the last couple of months.
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 have remained relatively stable this week, although the situation is mixed. Brazilian 3/4’s are slightly lower at minus 12; Honduras HG’s, are, however, unmoved at plus 13; Similarly Kenya AB FAQ’s, continue at between plus 60 and plus 75; while Colombian UGQ’s are down a cent at plus 25. Without any update on PNG Y1’s, I would guess that they might still be trading at around plus 3, but this remains just a guess. Therefore, had an exporter fixed on Friday in New York for February/March delivery he may have been able to secure a price somewhere between 152.75 cents/lb and 158.70 cents/lb.
This week’s increase was something of a surprise given that the overall tone was definitely bearish. There have been good rains in Brazil and the forecasts suggest that it will continue to rain through to the end of the month. However NOAA continue to predict a strengthening of the El Nino weather phenomenon which should bring drier weather to Brazil later in the year and this could be devastating for the crop although nothing is certain. So the outlook is somewhat opaque, but given the bearish overtones, prices may well retreat a bit this week.
Mick Wheeler, UK.