Another volatile week on both markets which appear to have been pressured by a firm dollar, increasing sales by origins and in the case of arabica by the liquidation of the positions for the March contract. The fact that Brazil was effectively out of the market for 2 days due to carnival celebrations added to the confused situation, as did the Tet holidays which kept things quiet in Vietnam. Arabica coffee prices finished the week losing 4.80 cents/lb with the second position (May 24) closing at 186.70 cents/lb. The London robusta coffee market mirrored movements in New York and ended the week losing $76/ton (3.45 cents/lb). In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea next week will probably be between 35 and 40 toea/kg lower than what they were last week.
The volume of stock certified against the New York exchange has been slowly rising all week to total 307,266 bags. This is 9,500 bags higher than the volume recorded last Friday but some 530,000 bags lower than the 840,000 bags level recorded at the same time last year. There is some debate whether traders and roasters are waiting until the end of this month to start drawing down stocks further as a significant volume of the stock will then be over a year old and thus will attract an age discount. However, that presupposes that roasters are in a position to wait and that there is adequate immediate availability of fresh stocks from origin, although the latest export statistics on exports from Brazil suggests there may well be. The latest Commitment of Traders’ Report suggests that speculators increased their long position by 2,831 lots to 59,256 lots long and decreased their short position by 291 lots to 21,194 lots short, with a net long position of 38,062 lots in the week to February 13th. Once again, these movements are not significant in themselves but the steady rise in speculators taking out long positions over the last 6 weeks or so is significant and suggest that they are more bullish about the future than the recent movements on the markets suggest.
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. There has not been that much movement in physical price differentials this week, but as always, the situation is mixed. Brazilian 3/4’s are slightly lower at minus 13; Honduras HG’s are steady at plus 7; Kenya AB FAQ’s are also unmoved at between plus 60 and plus 80; But Colombian UGQ’s are slightly higher at plus 15. So, without any update on PNG Y1’s, I can only guess that they might be unchanged at around minus 2/3. Therefore, had an exporter fixed on Friday in New York for May delivery he may have been able to secure a price somewhere between 180.80 cents/lb and 184.65 cents/lb.
The outlook is very uncertain at the moment, especially as in Brazil, weather forecasts show that Minas Gerais, the country’s main arabica coffee producing region, will receive heavy rain throughout next week. In addition, it can be anticipated that there will be a number of forecasts published on the size of Brazil’s upcoming crop in the next few weeks which will inevitably impact the market. There have also been reports of mealybug infestation in some conillon plantations which may have an impact on output, but the outbreak appears to be confined to a relatively small area so maybe not too significant. Furthermore, New York will be closed on Monday for President’s Day. I therefore anticipate that both markets may come under pressure next week, but with luck will not close too far below where they are now.
Source:
Mick Wheeler, UK.