The weather in Brazil continued to be the dominant factor which influenced both markets this week. Both markets started the week cautiously before continuing to climb mid-week on concerns about on-going dry weather in Brazil, only to collapse on Friday on news that heavy rain, which was not forecast, fell overnight in the South of Minas Brazil on Thursday. Arabica coffee prices lost 7.95 cents/lb over the week, with the second position (March 25) closing at 248.65 cents/lb. Robusta prices followed a similar path to arabica and lost US$195/ton (8.85 cents/lb). In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea next week will probably be between 70 and 75 toea/kg lower than they were last week.
The reports of rain suggest that it was heavy enough to promote a widespread flowering in the region which would be good for next year’s crop. But the longer-range weather forecasts suggest that there is very little further rain likely to fall over the next two weeks which if accurate, could be detrimental to the crop. So, the situation remains uncertain. In their latest forecast of Brazilian production for the current harvest (2024/25), CONAB has estimated that the country’s output will be 54.79 million bags, a drop of 6.8% decrease from their previous forecast issued in May of 58.81 million bags. Arabica production is put at 39.59 million bags,1.7% higher than last year’s production while conillon (robusta) output is put at 15.2 million bags. 6% lower than last year. CONAB estimate that the total area devoted to coffee in Brazil is 2.25 million hectares, with 1.9 million hectares in active production and 345.16 thousand hectares in the development stage. Brazil and China appear to be strengthening the coffee ties between the two countries with the announcement this week that the Luckin Coffee Company is launching a Brazilian Coffee Culture Festival to promote coffee from Brazil and has pledged to purchase Brazilian coffee worth $2.5 billion following an earlier deal to buy 120,000 tons worth $500 million over the next two years.
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. Physical price differentials appear to have been relatively stable, but the situation is mixed. Brazilian 3/4’s remain at minus 17; but Honduras HG’s are slightly higher at plus 11; Kenya AB FAQ’s, continue to be quoted at between plus 35 and plus 50; while Colombian UGQ’s are steady at plus 12. So, my best guess for PNG Y1’s is that they are probably steady at around minus 7. Thus, had an exporter fixed on Friday in New York for December delivery he may have been able to secure a price somewhere between 240.70 cents/lb and 255.40 cents/lb.
It is difficult to assess how important the rain that fell in Brazil this week will be in the development of the upcoming crop. No significant rainfall is forecast for the coffee growing areas until October 4th but as was seen this week the forecasts are not always accurate. It is also not clear how widespread the rain was. Yes, it fell in one of the more important coffee growing areas of Brazil, but there is no indication, at the moment, that there was extensive rain elsewhere. So, the outlook is murky, and it seems almost certain that both markets will remain volatile throughout the week to come. I suspect that there will be further downward pressure at the beginning of next week only to see a small recovery later although probably not enough to recover all the losses. Prices will therefore probably end the week lower.
Source:
Mick Wheeler, UK.