It was perhaps inevitable that prices would come under pressure this week, especially given the news released last week that Brazil’s exports were continuing at a record pace. However, it is also true that both markets continue to show significant resistance to any downward pressure suggesting that there is an underlying strength which reflects the concern over the tight supply/demand balance which will be seen over the next few months. Arabica coffee prices managed to hold on to a significant proportion of the gains it made last week but nevertheless still lost 10.55 cents/lb, with the second position (September 24) closing at 238.20 cents/lb. Robusta prices also fell but not by anything like the fall in arabica, losing just US$87/ton (3.95 cents/lb). In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea next week will probably be between 80 and 85 toea/kg lower than they were last week.
Reports suggest that it has been raining in many parts of Brazil this week delaying the harvest in some areas, however the longer-range forecast suggest that it will be dry over the next ten days with only the isolated shower in a few areas. It has been estimated that the overall harvest is now 73% complete with the conillon harvest virtually all finished. Interestingly there are reports that the rain has triggered some early flowerings, which given the upcoming dry spell, are unlikely to go on to form buds. Even so, it is interesting to note that the uneven flowering seen last year together with the irregular weather pattern seen throughout the year has not only lowered expected yields but is also reported to have affected quality. The Colombian Minister of finance said this week that he expects Colombia to produce in excess of 12 million bags this year. However, a report from a Colombian Bank, Bancolombia, suggests that the rate of renovation seen in the Colombian coffee sector is falling and that the total area devoted to coffee in the country is around 14% lower than it was a decade ago.
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. Despite the continuing volatility, physical price differentials appear to be remarkably stable, with Brazilian 3/4’s still quoted at minus 14; Honduras HG’s are unmoved at plus 9; likewise Kenya AB FAQ’s, remain at between plus 40 and plus 55; while Colombian UGQ’s are also steady at plus 15. My best guess for PNG Y1’s is that the differential is around minus 6. Therefore, had an exporter fixed on Friday in New York for October delivery he may have been able to secure a price somewhere between 227.60 cents/lb and 235.85 cents/lb.
Although both markets are displaying remarkable underlying strength it is difficult to be optimistic about the possibility of future price improvements. Yes, there is concern about the upcoming supply /demand balance, yes, there is concern that the Brazilian harvest will be smaller than anticipated and the quality is not as good as many had hoped and yes both Vietnam and Indonesia will have lower than hoped for crops. But all of this has been known about for weeks and has already been factored into the price and so the current price is probably where it should be. The only really unknown is demand and whether high prices over the past year or so have begun to have any real effect. So, the outlook looks unsettled and there is every chance that prices might ebb lower next week, but hopefully not by much.
Source:
Mick Wheeler, UK.