Weekly Market Report – 21 February 2021

It was a much better week than anticipated with the arabica market recovering all that it had lost over the past 2 weeks and approached month long highs. It is difficult to pinpoint the main driver of this upward move but a misreporting of the GCA stocks levels may have played a part, although that was quickly corrected. There is also increasing evidence that despite good rains throughout January and February, the Brazilian arabica crop will have been significantly impacted by the drought last year. Arabica coffee prices gained 6.15 cents/lb over the week while robusta remained virtually unchanged gaining just $2/ton (0.10 cents/lb). In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea over the week to come will probably be around 45 toea/kg higher than what they were last week.

The latest data from the Green Coffee Association (GCA), showed that coffee stocks in warehouses in all ports of the United States totalled 5,843,171 bags for the month ending January 31. Initially this was reported as being 135,130 bags less than the previous month but was in fact an increase of 50,870 bags. This report was corrected almost immediately and it is hard to see that the mistake made any real difference especially as the market continued to rise thereafter. Reports suggest that Colombia’s mitaca crop will be around 7% lower than last year as a result of the heavy rains that hit the region as a result of the La Nina weather phenomenon. Nevertheless, the crop is expected to come in between 5.5 and 6.5 million bags. There has been more trouble on Colombian coffee farms with reports that armed men killed 5 coffee pickers in what is being described as a drugs dispute. This is the second massacre in a month with 10 pickers killed in late January. Nestle published its full year financial results this week and reported that growth in coffee sales was very positive boosted by strong demand for Starbucks products (which they sell under licence), Nespresso and Nescafe. The largest growth was seen in e-commerce sales which grew by almost 49%.

Once again, I have not been able to access any formal reports from Traders this week, but other sources of data (which I cannot stress enough are not as reliable, nor unfortunately as up to date) suggest that there has been very little movement in physical price differentials this week. Brazilian 3 /4’s, appear steady at around minus 22; similarly, Honduras HG’s, continue at plus 22; Kenya AB FAQ’s are also unmoved at plus 75/90; Colombian UGQ’s remain at plus 50; while PNG Y1’s seem to be unmoved at plus 8/9. If an exporter had fixed a price on Friday for May/June delivery, he should have secured a price somewhere between 136.35 and 138.35 cents/lb.

Although this week’s gain is very welcome, the fact that many Brazilian traders have been absent from the market for much of the week to celebrate in a much-reduced manner Carnival suggests that selling pressure may have been somewhat reduced this week. Consequently, the price increase may well induce a wave of selling this week that has the potential to force prices much lower. On the other hand, much of the buying this week has come from speculators who may well be coming around to the view that the upcoming supply and demand balance for arabica coffee may well be a lot tighter than many have been suggesting. So, the outlook is uncertain but on balance there is a reasonable chance that prices might continue their upward march next week, although any increase is likely to be modest.

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