Not quite as anticipated but both markets rallied strongly at the beginning of the week, only falter a bit later on. Nevertheless, it was another stunningly positive week with arabica coffee prices gaining 11.40 cents/lb with the second position (July 24) closing at 231.85 cents/lb – a 2 year high, while robusta coffee prices also had another incredible week gaining $228/ton (10.35 cents/lb). The differential between arabica and robusta has now narrowed to just 47 cents/lb, something not seen for decades. In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea next week will probably be between 85 and 90 toea/kg higher than what they were last week.
The continued march upwards in prices appears to be in response to the ongoing dry weather in Brazil, which some analysts believe will affect the upcoming arabica harvest. The robusta harvest in Brazil has already started but is still very much in its early stages. The upward march also reflects concerns about how the dry weather in Vietnam and the wet weather in Indonesia will affect future production in these other major producers. The IMF published their latest World Economic Outlook this week in which it notes that, despite gloomy predictions, the global economy remains remarkably resilient and should grow by 3.2%, with global inflation declining from 2.8% at the end of 2024 to 2.4% at the end of 2025. This augers well for future consumption although the current higher prices will inevitably curb any immediate demand growth. Despite the fact that prices are a 2 year high more than 3,000 Colombian coffee growers took to the streets on Wednesday to demand higher coffee prices, better access to the country’s coffee price stabilization fund, better access to development credit, more innovative solutions to debt problems, subsidies on inputs and easier access to bigger loans. It is not clear whether a government move to create a body that will act as consultative body of the government in matters of the coffee subsector is connected to this unrest but it is clear that all is not well with the relationship between the FNC and the Government. Although Ministers deny that the intention is to create a parallel institution to the FNC, it certainly looks as though this may well pave the way for its replacement.
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. Surprisingly physical price differentials appear to have strengthened a bit this week, but the situation is mixed. Brazilian 3/4’s are slightly higher at minus 14; Honduras HG’s are also higher at plus 6; but Kenya AB FAQ’s appear to be slightly lower at between plus 40 and plus 65; while Colombian UGQ’s are steady at plus 14. Without any regular updates on PNG Y1’s I can only guess that they are at somewhere around plus 4. Therefore, had an exporter fixed on Friday in New York for July/August delivery he may have been able to secure a price somewhere between 232.80 cents/lb and 242.90 cents/lb.
It still feels as though this market still has some further upward movement left in it. There was certainly a bit of a correction on Thursday when profit taking caused prices to dip by 9 cents/lb but prices steadied on Friday and even started to go back up. The latest Commitment of Traders report shows that speculators continue to add to their long positions, so the only conclusion is that over the week to come both markets will continue to be very volatile but there is every reason to believe that they will end the week higher, but probably not by much.
Source:
Mick Wheeler, UK.