The week probably started off too well with arabica coffee prices surging to over $2.00/lb in response to lower estimates of Brazilian output as well as surging oil prices. However, it proved impossible to maintain the momentum and once prices began to retreat, it turned into a rout, wiping out all the gains made during the first two days of the week. Arabica coffee prices ended the week virtually unchanged losing just 0.05 cents/lb, with the second position closing at 191.45 cents/lb. The robusta market followed a similar path but finished the week $30/ton (1.35 cents/lb) lower. In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea next week will be about the same as they were last week.
It is interesting to note that both markets are now in backwardation in that prices for spot deliveries are higher than those for future delivery. This is unusual and reflects the immediate concern about the current availability of coffee. Heavy rain in Colombia has not only damaged the flowering for the mitaca crop later in the year but is also having an impact on current harvesting, raising the prospect that the crop will be much lower than was initially forecast. In addition, reports suggest that the crop in Indonesia has also been damaged by heavy rain. Taking this into account, it could be that market participants were prompted to push prices up in response to news that there is a 62% chance of the weather phenomenon known as the El Niño developing during May-July 2023. According to the latest information from NOAA, above-average sea surface temperatures (SSTs) became more prominent in the western and far eastern equatorial Pacific Ocean during the past month suggesting that an El Nino was more likely. The latest data from the GCA indicates that coffee stocks in warehouses in all ports of the United States totaled 6,016,272 bags at the end of March, this is 88,690bags, or 1.45% lower than at the end of February but it is 195,974 bags higher than were recorded in March 2022.
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 rapid upward surge in futures prices seen earlier on in the week, physical price differentials appear to have remained fairly steady this week with Brazilian 3/4’s remaining at minus 1, similarly Honduras HG’s are unmoved at plus 21; as are Kenya AB FAQ’s at between plus 40 and plus 65; Colombian UGQ’s continue to be quoted at plus 46. For PNG Y1’s, I can only guess that they too will have been steady at plus 9/10. Therefore, had an exporter fixed on Friday in New York for July/August delivery he may have been able to secure a price between 199.10 cents/lb and 203.80 cents/lb.
Both markets are clearly very jittery at the moment, which makes any predictions about what might happen over the week to come somewhat problematic. However, the fact that prices rose to over $2.00/lb does suggest that there is clear acceptance of the fact that the upcoming Brazilian crop will be much lower than everyone initially expected with the arabica crop somewhere between 40 to 43 million bags and robusta somewhere between 18 and 20 million bags, suggesting another deficit in world output this year. The collapse during the second half of the week may have reflected profit taking or possibly something more significant, it is hard to say, but further downward movement looks unlikely, but by no means impossible. With luck prices may rally a bit over the week to come to finish the week slightly higher.
Source:
Mick Wheeler, UK