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Against expectations both markets retreated from the highs reached last week. Prices on both markets are still higher than they were two weeks ago, but expectations of further increases were unfulfilled. There were a number of attempts by speculators to push prices higher, but all failed to attract momentum and came to nothing. Arabica coffee prices lost 7.90 cents/lb over the week while robusta coffee prices lost $79/ton (3.5 cents/lb). In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea over the week to come will probably be around 55 to 60 toea/kg lower than what they were last week.

This week’s decline although a disappointment, can be attributed to a weakening in Latin American currencies, a stronger US dollar, and an overall feeling that the market was over-bought. The strength of the dollar can be attributed to data released this week that showed that consumer prices in the US rose more strongly during the last quarter than at any time since 2009. If this continues then the Federal Reserve will be forced to raise interest rates which is why the currency has strengthened. It can also be attributed to a report from the IMF which suggested that there will strong global growth throughout the rest of 2021 with the US powering ahead as a result of the fiscal stimulus package and a successful vaccination programme. Civil unrest continues in Colombia, with at least 42 people killed and more than a thousand injured in clashes with the police. The blockade on many roads is causing serious problems which have not only delayed and curtailed shipments of coffee from the country but are also causing problems getting coffee from the farms to the various processing facilities and warehouses. There also appears to be delays in coffee shipments from a number of origins as a result of a shortage of shipping containers. This appears to be down to an unforeseen surge in demand for consumer goods, which has caused serious delays at many important ports. For instance, in China’s largest ports there are delays of 5 to 7 days, while in Singapore, waiting times are reported to be between 3 and 5 days.

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. These sources suggest that there has been very little movement in physical coffee price differentials this week. Brazilian 3 /4’s, appear to be slightly lower at around minus 21; Honduras HG’s are steady at plus 22; as are Kenya AB FAQ’s, at plus 100/110; Colombian UGQ’s are also steady at plus 51; PNG Y1’s are not widely quoted but appear to be unmoved at plus 8. If an exporter had fixed a price on Friday for August/September delivery, he should have secured a price somewhere between 154.70 and 157.70 cents/lb.

Given this week’s unexpected retracement it is difficult to be optimistic about the week ahead. However, nothing has fundamentally changed. It continues to be dry in Brazil and many farmers there are reporting smaller screen sizes and an increase in defect levels. The decline this week although dramatic still leaves prices higher than they were a few weeks ago and many analysts continue to be bullish. There are however mixed signals out there what with a huge draw down in certified stocks seen over the last year but signs that they well be starting to build up again. They are nowhere near the highs, but they are now well above the lows they reached a couple of months ago. On balance it seems more probable than not that prices will improve over the week to come, but nothing can be guaranteed.

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