Although it was only a very light frost last weekend, affecting a small number of isolated places in Brazil, it still livened things up this week. Prices were very volatile, and although they fell by over 9 cents/lb on Tuesday when it became apparent that the damage caused was minimal, they nevertheless spent the rest of the week climbing. Over the week arabica coffee prices gained 13.85 cents/lb with the second position (December 24) closing at 244.10 cents/lb, while robusta prices were up US$259/ton (11.75 cents/lb). In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea next week will probably be about 105 to 110 toea/kg higher than they were last week.
Frosts were recorded in some isolated areas of Mogiana, Southern Minas, Sao Paulo and the Cerrado regions of Brazil on Sunday night, but the market appears to be more focused on the potential damage prolonged temperatures below 10 degrees may have caused to the upcoming flowering. It is, of course, still far too early to say, and the situation varies from region to region depending very much upon the altitude of the farms in the affected areas. But clearly the market is concerned. Brazil’s IBGE have revised their forecast for the country’s 2024 coffee crop down ever so slightly this week, putting total production at 60.7 million bags. Arabica output is estimated at 42.2 million bags, the same as they estimated last month, while robusta (conillon) production has been estimated at 18.5 million bags, down 1.0% from their estimate made in July. The Colombian government is seeking to change the way the country’s coffee stabilization fund works, arguing that coffee growers should contribute more to the fund during times of high coffee prices. However, any modification to the stabilisation fund will need congress approval. It has been reported this week that Starbucks Korea has increased prices of its coffee although this is the first increase since January 2022 when it raised prices by a similar amount. Other retailers may well follow suit.
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 appear to be relatively unchanged this week, with Brazilian 3/4’s continuing to be quoted at minus 15; Honduras HG’s, remain at plus 10; likewise Kenya AB FAQ’s, remain at between plus 35 and plus 50; while Colombian UGQ’s are unmoved at plus 14. So, my best guess for PNG Y1’s is that they are probably still at around minus 6. Thus, had an exporter fixed on Friday in New York for December delivery he may have been able to secure a price somewhere between 230.45 cents/lb and 238.45 cents/lb.
The Commitment of Traders report as of 13 August indicates that the major funds are still long (net long 38,960 contracts), which suggests that they believe that there is still some upward movement to come. Everyone agrees that there were some isolated frosts last week in Brazil but equally all agree that the damage was limited. So, the market appears to be focusing more on the potential long-term damage which remains very speculative. Yes, the flowering has started in some robusta areas but there are no reports of widespread flowering in arabica areas and until there is no real assessment can be made. Consequently, it is rather difficult to be anything but cautious about the immediate outlook. Even so, the strong performance seen at the end of last week suggests that the upward momentum could well continue into next week and it would be no surprise to see prices go even higher.
Source:
Mick Wheeler, UK.