Weekly Market Report – 20 November 2022

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Weekly Market Report – 20 November 2022

Fears that rampant inflation will mean that the looming global recession will be deeper and more long lasting than initially thought, have hit all commodities hard, forcing prices down across the board.  Coffee is no exception and indeed may be one of the worst hit, as prices took another tumble this week to hit a 16 month low. Arabica coffee prices seem to be bearing the brunt of this negative sentiment, falling 13.00 cents/lb but robusta prices fared much better only losing $25/ton (1.10 cents/lb).  In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea next week, will probably be around 100 toea/kg lower than what they were last week

The disparity between the falls in arabica and robusta prices reflects the fact that in times of recession people tend to consume lower priced coffee products rather than stop drinking altogether.  This suggests that there will be a rise in consumption of instant coffee as well as lower quality blends.  Out of home consumption will also be hit.  The latest Green Coffee Association (GCA) coffee stocks total for coffee stored in warehouses in all ports of the United States totalled 6,320,157 bags at the end of October.  This is 58,321bags lower than at the end of September and 344,050 bags lower than in October 2021. Although this a larger fall than last year, the fact is that traditionally stocks have tended to fall by a much greater amount than this at this time of the year reflecting the fact that consumption usually rises as temperatures fall.  However, climate change means that such falls in temperature are happening later in the year and consequently hitting consumption.  Adding to the general gloom is the fact that certified stocks continue to rise, totalling 497,809 bags on Friday but more alarmingly with a further 569,638 bags pending grading.  Whilst not all of this coffee will pass, the fact that it is being put up for grading confirms the premise put forward last week that demand for ex-certified coffee is much weaker than previously thought.

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.  Movements in physical price differentials are mixed with some strengthening in the face of falling Futures prices, while others remain unmoved or weaker.  Brazilian 3/4’s are higher at minus 9; but, Honduras HG’s appear to be steady at plus 38; as are Kenya AB FAQ’s at between at plus 75 and plus 90; but Colombian UGQ’s appear to be lower at plus 65.  Without any update on PNG Y1’s, I would guess (and it is just a guess) that they might also steady at around plus 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 158.50 cents/lb and 164.50cents/lb.

It is difficult to be positive when coffee prices have fallen for 5 straight weeks in a row.  It could be argued that the collapse has been overdone, but there is no evidence that market sentiment is about to change.  Prices fell every day this week.  However, truckers have gone on strike in Brazil which may delay some shipments and offer some temporary support. Also the president of Cooxupe’s, Brazil’s biggest arabica coffee cooperative, said that he believes that the flowering in Brazil has not been that good and that this might affect the size of the 2023 crop.  It is unlikely, however, that this will be enough to turn the tide, but a bounce is certainly overdue and thus without a lot of confidence prices might improve a bit next week.                                                                                                                               

Mick Wheeler, UK.

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