Weekly Market Report – 23 May 2021

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Reports that the current dry weather in Brazil will continue for a bit longer than usual plus a smaller than expected increase in GCA stocks helped to push the market much higher this week. Most of the increase occurred on Tuesday when arabica prices leapt up by 7 cents/lb but for the rest of the week the market appeared uncertain what to do next and prices started to drift downwards. Robusta coffee prices also made ground but almost reluctantly and nowhere near as dramatically as that seen in the arabica market. By the end of the week arabica coffee prices were 5.15 cents/lb higher while robusta prices had risen by $18/ton (0.85 cents/lb). In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea over the week to come will probably be around 35 to 40 toea/kg higher than what they were last week.

Bloomberg reported this week that the continuing dry weather in Brazil will cause further damage to both the orange and coffee crops there, highlighting concerns that the long dry spell has critically lowered levels in the reservoirs in areas which rely on irrigation. GCA stock figures released this week showed that stocks in warehouses in the US only rose by 83,000 bags during April, when the market would have expected to see an increase of at least 200,000 bags. The USDA has published numerous attaché reports this week, the most notable of which suggests that Brazilian production for the 2021/22 season will be 56.3 million bags, down by 19% on last year’s output. This is somewhat higher than other sources, but the USDA are nearly always higher than everyone else. Colombia’s output has been estimated at 14.1 million bags; Indonesia’s at 10.63 million bags; Ethiopia’s at 7.62 million bags; India’s at 5.41 million bags; Peru’s at 3.95 million bags; Honduras’s at 5.1 million bags; Mexico’s at 3.49 million bags; Guatemala’s at 3.47 million bags; Tanzania at 1.4 million bags; El Salvador’s at 519,000 bags; and Ecuador’s at 261,000 bags. None of these estimates are of real surprise with some showing a decline while others showing an increase. The full report will be published in June.

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. These sources suggest that physical coffee price differentials may have improved this week. Brazilian 3 /4’s, appear to be slightly higher at around minus 20; Honduras HG’s are up slightly at plus 23; but Kenya AB FAQ’s, are steady at plus 100/110; Colombian UGQ’s may also be slightly higher at plus 52; but PNG Y1’s which are not widely quoted appear to be unmoved at plus 8. If an exporter had fixed a price on Friday for August/September delivery, he should have secured a price somewhere between 158.55 and 162.75 cents/lb.

The market’s performance this week suggests that there may be a possibility of prices continuing to improve, but equally there are signs that there is considerable resistance to any such move. There is clearly significant uncertainty over what is happening to the Brazilian crop, with different reports sending conflicting messages. What is clear is that the Brazilian crop will be lower and that there may be a deficit in the supply/demand balance, although world stocks should be more than sufficient to cover any shortfall. What is more uncertain is what effect the current dry weather will have on next year’s crop. This remains unknown but the uncertainty suggests that prices will continue to be firm over the week ahead.

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