It was beginning to look as though this would have been an excellent week for arabica coffee prices, but profit taking on Friday combined with interest rate increases by a number of Central Banks spoiled the fun. Even so arabica coffee prices still made 6.25 cents/lb over the week with the second position (March 23) settling at 164.40 cents/lb. Robusta prices did not follow the same path and only manged to gain just $2/ton (0.1 cents/lb). However, there is something funny going on in London with possibly a squeeze being mounted on the January position, which is now trading at $67/ton premium over the March position, up from $19/ton on Monday. In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea next week, will probably be between 45 and 50 toea/kg higher than what they were last week
It would be fair to say that the increase in prices earlier in the week was unexpected, although it appears to have been in response to China lifting its Covid restrictions as well as reports that hail in Brazil had knocked flowers off many trees. However equally there were a couple of reasons why it fell on Friday. Although in itself probably not that significant, in their final survey of the 2022/23 coffee crop, CONAB estimated that production will amount to around 50.92 million bags, up 1% on their previous forecast of 50.38 million bags. This is also 6.7% higher than the 2021 harvest. They estimate that the area devoted to coffee in 2022 was around 2.2 million hectares, 1.8 million hectares of which is estimated to be in production while the remaining 400,600 hectares is in development. They also estimate that just under 1.5 million hectares of the area in production were dedicated to arabica coffee and 389,000 hectares to conillon coffee. Another bearish factor was the latest data from the GCA on coffee stocks held in warehouses in all ports of the United States, which showed that at the end of November the total was 6,390,424 bags, this is 70,267bags higher than was recorded in October and 546,703 bags (9.4%) higher than in November 2021. Traditionally stocks in America tend to fall so this increase, although not large, was seen as being bearish.
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. Origins remain reluctant sellers and whilst movements in physical price differentials have been mixed this week, all are steady or higher. Brazilian 3/4’s continue to strengthen and are a cent higher at minus 7; Honduras HG’s steady at plus 37; Kenya AB FAQ’s are also steady at between at plus 65 and plus 90; as are Colombian UGQ’s at plus 60. Without any update on PNG Y1’s, I would guess (and it is just a guess) that they might also be steady at around plus 3/4. Therefore, had an exporter fixed on Friday in New York for March/April delivery he may have been able to secure a price between 166.80 cents/lb and 176.80 cents/lb.
Although Friday’s fall was disappointing, there is no doubt that overall sentiment is beginning to change. More Trade Houses in Brazil are confirming that the 22/23 arabica crop is smaller than expected, something that appears to be confirmed by the almost complete absence of selling by Brazilian farmers over the last 3 to 4 weeks, hence the significant increase in Brazilian differentials. The Vietnamese crop also looks like it will come in around 10% lower than expected, which all suggests that maybe there will be another small deficit next year. Consequently it would be no surprise to see prices increase a bit next week.
Source:
Mick Wheeler, UK.