As suspected the fall seen in both markets the Friday before was overdone and both markets regained all the losses they had suffered by Monday. But thereafter both markets continued to move steadily upwards with an even bigger leap on Friday as it became clear that the dry weather in Brazil will continue for some time to come. Arabica coffee prices finished the week 26.55 cents/lb higher, with the second position (December 24) closing at 259.45 cents/lb. Robusta prices made equally eye-catching ground, gaining US$443/ton (20.00 cents/lb). In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea next week will probably be between 225 and 235 toea/kg higher than they were last week.
Although the weather forecasts suggest that there may be some rain in Southern states of Brazil this weekend the rest of the country looks set to be dry until at least the end of the month. In fact, the state of Espirito Santo has just announced the adoption of water use restrictions due to the lack of rain. If these restrictions continue then this will impact the region’s ability to irrigate of the upcoming coffee crop. Interestingly NOAA’s Climate Prediction Centre (CPC) is predicting that there is a 71% probability for a La Niña weather phenomenon to form over the next couple of months with “conditions expected to persist through to March 2025”. La Niña often brings drier than normal conditions to the Southeast coffee regions of Brazil and wetter than normal conditions to the Vietnam coffee growing highlands. Brazil’s IBGE has revised their forecast for the country’s 2024/25 coffee crop reducing it from the estimate they produced last month by 1.6% to 59.7 million bags. Arabica output is estimated at 42.0 million bags, while robusta (conillon) is put at 17.7 million bags. Starbucks continues to expand its international reach announcing this week that it will open 30 new coffee shops in Colombia over the next three years while the Hong Kong based Maxim Group (one of its franchisees) now operates over 1,000 stores throughout Asia.
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 the movements have been small. Brazilian 3/4’s are slightly lower at minus 17; but Honduras HG’s, continue at plus 10; as do Kenya AB FAQ’s, at between plus 35 and plus 50; Colombian UGQ’s are steady at plus 12. So, my best guess for PNG Y1’s is that they are probably around minus 7. Thus, had an exporter fixed on Friday in New York for December delivery he may have been able to secure a price somewhere between 241.70 cents/lb and 253.45 cents/lb.
The steady increase in both markets seen last week augers well for the outlook next week. However the large jump on Friday is of concern as it may well have been overdone triggering a correction on Monday. Indeed, it is interesting to note the Commitment of Traders report of September 10th showed that speculators and the Funds decreased to their overall net long position to 39,084 lots, which suggests that they are of the opinion that large movements are less likely in the future. Consequently, the outlook is not necessarily as rosy as it may at first seem and it can be anticipated that prices may well drop early on in the week. But the dry weather continues in Brazil and this fact alone will underpin values throughout the week. Consequently, I expect that prices will end the week a bit higher than where they are now.
Source:
Mick Wheeler, UK.