Coffee prices on both markets rebounded this week and made substantial gains, partially reflecting the uncertainty over size of next year’s crop in Brazil but also partially reflecting the uncertainty over the wider macro-economic world trade environment outlook. Arabica coffee prices rose by 14.20 cents/lb with the second position (July) closing at 385.30 cents/lb. Robusta coffee prices also made significant gains, albeit more modest than arabica coffee price increases, but it still rose by $118/ton (5.35 cents/lb). In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea next week will probably be between 105 and 110 toea/kg higher than they were last week.
The concern over the size of the upcoming crop in Brazil can be attributed to the distinct lack of rainfall in many coffee growing regions of Brazil. In Minas Gerais for example the state has only seen a fifth of the rainfall it normally sees over the past month and less than half what it would normally experience since the start of the year. There is rain forecast for the week ahead, but it will still be less than is normally seen at this time of the year. Furthermore, the volume of stocks certified against the New York arabica market continues to fall, shrinking by just under 20,000 bags over the week. However certified stocks against the London robusta market have increased slightly, rising by just over 12,000 bags over the week. Data from the Brazilian Coffee Industry Association (ABIC) shows that domestic coffee consumption rose 1.1% to total 21.92 million bags over the 12 months from November 2023 to October 2024. This is despite the fact that retail prices rose almost 39% over this period. The data also suggests that instant coffee is still the main driver of coffee consumption growth in the country, but that there is also strong growth in the specialty sector.
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 improved a bit this week, but the situation is certainly mixed. Brazilian 3/4’s are lower at minus 12; but Honduras HG’s are slightly firmer at plus 1, as are Kenya AB FAQ’s at between plus 15 and plus 25; similarly Colombian UGQ’s are slightly better at plus 4. I can only assume, therefore, that PNG Y1’s are probably also slightly firmer at around minus 7, but, as always, this is just a guess. Thus, had an exporter fixed on Friday in New York for June/July delivery he may have been able to secure a price somewhere between 373.45 cents/lb and 381.90 cents/lb. The continuing volatility reflects the uncertainty that dominates both markets at the moment with many participants sitting on the sidelines almost afraid of taking a position in case they get it drastically wrong. Of interest perhaps, is the latest commitment of traders’ report which shows that speculators have started to reduce their long positions and started to increase their short position, however they have also reduced their overall exposure to the coffee market considerably. This suggests that while some might be anticipating that the market will fall, others are preferring to move out completely as they clearly think the situation is too hard to call. The outlook for the week ahead is therefore equally hard to call, but on balance it is almost certain that we will see continued volatility, with prices possibly ending the week very close to where they are now.
Source:
Mick Wheeler, UK.