The chaos in the Middle East and the likelihood that the Strait of Hormuz will be closed for some time to come has pushed up commodity prices across the board. It looks like the big money investment we saw last week has paid off! Over the week arabica coffee prices gained 17.20 cents/lb, with the second position (July) closing at 302.35 cents/lb. Robusta coffee prices also rose but more modestly than that seen in New York, gaining $209/ton (9.50 cents/lb) to finish the week at $3,664/ton (May). In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea next week will probably be between 160 and 165 toea/kg higher than they were last week.
Like last week the volatility that has dominated the markets this week can be attributed to the continuing war in Iran. And whilst coffee is not really directly affected by the war, the disruption it is causing to global shipping and to energy supply chains and hence energy markets has, inevitably, had a massive knock-on effect on coffee. At the NCA conference this week, Carlos Mera of Rabobank stated that the Bank was forecasting that the new Brazilian coffee crop would be between 71 and 72 million bags, including a 10 million bag increase in arabica production to 49 million bags. They also anticipate that Vietnam will see a major recovery from last season, with production expected to be in excess of 30 million bags. Overall Rabobank expects there to be a global supply surplus of around 7-8 million bags, following a balanced scenario in 2025/26. They anticipate that demand will be fairly flat during the current coffee year, but should start to recover to around 2% during the 2026/27 coffee year. Safras & Mercado released updated old/new crop sales figures this week suggesting that sales of Brazilian coffee by exporters is significantly behind the performance seen last year. They suggest that so far only 73% of the 2025/26 crop has been sold whereas at the same time last year 93% of the crop had been sold. Rather bizarrely however forward sales of the upcoming crop are roughly in line with forwards sales made at the same time last year.
Once again, I cannot get access to any reliable regularly-published data on price differentials, so I have had to rely on sources which may not be entirely accurate or up to date. Physical price differentials appear to have hardened substantially this week. Brazilian 3/4’s are, inexplicitly, steady at plus 15; but Honduras HGs are sharply higher at plus 17, Kenya AB FAQ’s are also higher at between plus 45 and plus 50; Similarly Colombian UGQ’s are also much higher at plus 37. Consequently, I can only guess that PNG Y1’s will also be much higher at around plus 5. Thus, assuming that I am right about this, it should have been possible for an exporter to fix on Friday in New York for June/July delivery at a price somewhere between 296.30 cents/lb and 309.60 cents/lb. This week’s increase in values continues to reflect the nervousness felt as a result of the war in the Middle East. In doing so it overshadows the effect of current basic fundamentals which continue to be bearish. However, once again the large funds and speculators have increased their net long position, this time by around 3,772 lots. The longer the war goes on, the greater the volatility will be, although I would expect to see some sort of correction soon, but maybe not just yet. So, the outlook is for prices to go higher next week, by how much is anyone’s guess, although I would not rule out some sort of correction later in the week.
Source:
Mick Wheeler, UK.
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