Both markets were extremely volatile this week, although the robusta market led the way forging higher from the outset but did retreat a bit later in the week. The big news of the week was the elimination of all US tariffs on Brazilian coffee imports on Thursday evening which forced both markets lower on Friday. Arabica coffee prices finished the week 4.55 cents/lb lower, with the second position (March) closing at 369.45 cents/lb. Robusta coffee prices on the other hand rebounded really strongly on Monday although did retreat a bit throughout the rest of the week. Nevertheless, unlike arabica they finished the week higher, gaining $283/ton (12.85 cents/lb). In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea next week will probably be between 35 and 40 toea/kg lower than they were last week.
It is difficult to pinpoint why the two markets diverged so dramatically this week. It could well have been that the losses made on the robusta market last week were seen to have been excessive and Monday’s rise was just a correction. However there have been reports of a possible squeeze on the January position especially as stocks certified against the London market haven dropping away quite alarmingly over the past few weeks. Although there appears to have been significant quantities tendered against the exchange this week so much will depend on how much actually passes grading. President Trump removed the 40% tariff that was still in place for coffee imported into the US from Brazil by Executive Order on Thursday after the markets had closed. He explained that he removed the tariff because of the progress that the U.S. has made in its trade negotiations with Brazil. The order applies to Brazilian coffee imports into the U.S. on or after November 13th. The main crop harvest has started in Colombia, but reports from the internal industry suggest that output is sharply down with estimates of the losses ranging from 20% to as much as 40%. The main harvest takes place during the last quarter of the year and if the reports are correct then it is highly unlikely that Colombia will achieve its stated aim of producing 14 million bags this crop year.
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. There has been little movement in physical price differentials this week, but as always, the situation is mixed. Brazilian 3/4’s, continue at minus 24; as do Honduras HG’s at plus 6, Kenya AB FAQ’s are also unmoved at between plus 35 and plus 40; but Colombian UGQ’s are slightly higher at plus 16. I would therefore guess that PNG Y1’s are steady at around minus 10, but I must stress that this just a guess. Thus, had an exporter fixed on Friday in New York for March delivery he may have been able to secure a price somewhere between 341.15 cents/lb and 365.05 cents/lb. The reaction to the removal of the tariff on Brazilian coffee imports on Friday was more muted than most would have expected, especially given the volatility that the speculation over its removal the week before had caused. There is therefore a very real danger that prices might still come under pressure when the markets reopen on Monday. However, what has been surprising this week has been the strength of the robusta market and it may have been this which lent support to New York. Even so, the outlook is probably more bearish and it should be anticipated that prices may well finish the week lower, although not massively so.
Source:
Mick Wheeler, UK.