Although I anticipated that prices would come under pressure this week, the size of the collapse was certainly much larger than anyone expected. The week started off quietly enough, but data released by CECAFE on Wednesday showing that Brazilian exports during September were higher, plus reports of further good rains in Brazil coupled with a much stronger dollar combined later in the week to push prices sharply down. Arabica coffee prices lost 15.25 cents/lb over the week, while robusta lost $103/ton ((4.65 cents/lb). In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea next week, will probably be between 110 and 115 toea/kg lower than what they were last week.
The latest data from the Brazil Coffee Export Association (CeCafe) showed that Brazil exported 3.07 million bags of green coffee in September, up 7.1% from the 2.87 million bags exported during September last year. Arabica exports totalled 2.93 million bags (up 18%) while robusta exports were down by over 60% to 147,323 bags. The market has also reacted to reports that demand, especially in Europe is being to wane as roasters raise prices in the face of the increased cost of roasting as a result of higher energy prices especially gas prices, and a drop in the value of the Euro, which has fallen by over 13% against the dollar over the last 2 months. The markets are also reacting to the recent USA inflation figures which suggest that there will be another increase of the interest rates, possibly by as much as 1.00% when the Federal Reserve meets in 2 weeks’ time in early November. This has added to the attractiveness of the dollar to overseas investors who are buying dollars as a result. Vietnam’s Customs Authority reported that the country exported 1.54 million bags in September, down 17.8% from that exported in August. This brought the coffee year total to 27.38 million bags, 7.95% higher than in 2020/21. Hurricane Julia hit Nicaragua earlier this week before being downgraded to a tropical storm and bringing extreme weather to El Salvador, Guatemala and Costa Rica. However very little overall damage to the coffee sector was reported.
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, inevitably come under a lot of pressure this week. Brazilian 3/4’s are sharply lower at minus 18; Honduras HG’s are also down 3 cents/lb at plus 35; Similarly Kenya AB FAQ’s are also down, quoted at between plus 65 and plus 85; Colombian UGQ’s despite the brief recovery seen last week continue to weaken to be quoted at plus 62. Without any update on PNG Y1’s, I would guess (and it is just a guess) that they might also be lower at around level. Therefore, had an exporter fixed on Friday in New York for Feb/March delivery he may have been able to secure a price between 195.25 cents/lb and 203.00 cents/lb.
Although precarious, the outlook is reasonably positive. There was a devastating hailstorm in Minas Gerais which knocked many of the newly formed flowers off the trees. Whilst there will be a second flowering, this setback will impact the quality of next year’s harvest. The GCA stock figures are due out on Monday which will show whether there has been a drop in demand in America. Furthermore, the fall seen this week was probably overdone, so there will be some kind of bounce. Thus, it would not be surprising to see prices finish a bit higher.
Mick Wheeler, UK