Well, I got it seriously wrong last week. When I prepared my report the Brazilian weather forecasts suggested that there would only be light rain this week with very little rain thereafter. That all changed on Monday when the forecasts were revised to show more moderate rainfall over the week followed up by light to moderate rain over the next 2 weeks. As a result, instead of rising as I had predicted, arabica coffee prices fell heavily aided by a stronger dollar and a larger than anticipated rise in GCA stocks. Over the week arabica coffee prices lost 13.40 cents/lb, while robusta prices fell by $62/ton (2.80 cents/lb). In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea next week, will probably be about K1/kg lower than what they were last week.
The Green Coffee Association (GCA) published its monthly stock data this week showing that there were 6,450,086 bags of coffee stocks in warehouses in all ports of the United States at the end of August. Traditionally stock levels in America tend to fall during August, but this year the total is 3.6% or 226,801 bags higher than at the end of July and 5.2% or 319,602 bags higher than at the end of August 2021. The US dollar has been gaining ground against all currencies this week as a result of the publication of the US Consumer Price Index which shows that inflation is above expectations fuelling expectations that the Federal Reserve will have to raise interest rates this week. Many believe this will inevitably erode demand for all commodities and especially coffee which is still seen as luxury product, albeit normally an affordable one. However, there was some good news this week with the publication of 2 reports which suggest that demand is getting back to almost where it was before the pandemic. According to Project Café USA 2023, the US branded coffee shop market segment grew by 10% to total $45.8bn, 96% of pre-pandemic market value. In a second report it was found that coffee ordered from restaurants in Canada is growing again with more than 2 billion coffee servings ordered from Canadian restaurants during the last year, this is up 13% from a year ago. However, that number is still 15% lower than in 2019.
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. In the face of this week’s decline, physical price differentials appear to have strengthened a bit. Brazilian 3/4’s are up a cent at minus 17; Honduras HG’s are also slightly higher at plus 40; But Kenya AB FAQ’s continue to be quoted at between plus 70 and plus 90; Similarly Colombian UGQ’s are unmoved at plus 74. Without any update on PNG Y1’s, I would guess (and it is just a guess) that they might slightly higher at around plus 4/5. Therefore, had an exporter fixed on Friday in New York for Dec/Jan delivery he may have been able to secure a price between 215.35 cents/lb and 220.25 cents/lb.
The change in the weather outlook significantly alters the outlook as it is hard to see prices improving while the rain is falling. However, stocks certified against the New York market continue to fall, shrinking by a further 82,500 bags this week to finish at 532,448 bags. Given high freight rates, roasters will continue to see this as a cheaper source than buying direct from origin so further falls in these stock levels will take place over the week to come. Whilst this will do nothing to change the direction of price movement it will slow down the rate of decline. Thus prices will probably fall further this week but hopefully not by much.
Mick Wheeler, UK