Weekly Market Report 23 October 2022

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Weekly Market Report 23 October 2022

The anticipated bounce never happened as coffee prices came under renewed downward pressure as a result of a better outlook for next year’s Brazilian crop, a stronger US dollar and more evidence that there will be a global recession. Arabica coffee prices lost 6.20 cents/lb over the week while robusta lost $55/ton (2.50 cents/lb). In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea next week, will probably be between 45 and 50 toea/kg lower than what they were last week.

Adding to the downward pressure this week was a sharp depreciation of the Colombian peso, which forced local coffee prices upwards to near new record high levels, encouraging growers to sell any coffee they were holding back. The latest GCA coffee stocks totals show that coffee stocks in warehouses in all ports of the United States totalled 6,378,478 bags at the end of September 30th, down 71,608 bags over the month, but 355,555 bags higher than at the end of September last year. The market had been anticipating a fall of at least twice that figure, although news on stock held elsewhere indicate that these are rising suggesting that demand is weaker than many had hoped. The situation is not helped by higher retail prices for coffee. US Government data shows that US coffee prices averaged $6.17/lb in September, 32% higher than last year with inflation running at around 8.2% p.a. In Europe, Eurostat data suggest that the price of coffee in the EU in August 2022 was on average 16.9% higher than in August 2021. Nestle reported this week that over the first 9 months of the year sales of its coffee product grew at what it called “a high single-digit rate”, with positive sales developments for Nescafé, Starbucks and Nespresso. Sucden Financial has released their latest market update for the coffee market in which they see a deficit of 4.96 million bags in 2022/23 following a deficit of 11m bags in 2021/22. They also see a 1.5% increase in global demand for 22/23, with consumption reaching 169.51 million bags, up from 167.5 million bags.

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 strengthened a bit, partially offsetting the decline in Futures. Brazilian 3/4’s are up 3 cents at minus 15; Similarly, Honduras HG’s are also up, gaining 2 cents/lb at plus 37; Kenya AB FAQ’s appear to be steady at plus 65 and plus 85; whilst Colombian UGQ’s are higher and are quoted at plus 65. Without any update on PNG Y1’s, I would guess (and it is just a guess) that they might also be higher at around plus 2. Therefore, had an exporter fixed on Friday in New York for Feb/March delivery he may have been able to secure a price between 183.65 cents/lb and 189.45 cents/lb.

After a two-week unopposed plunge, the market does appear to be pausing to take stock. However, whilst the weather forecast is for drier weather, there is sufficient rain in the forecast to suggest that this will not be a factor going forward. Furthermore, global freight rates appear to be falling suggesting that demand for freight is shrinking reinforcing the notion that the world is heading into a recession. On the positive side the outlook is for a continued deficit and certified stocks continue to fall, although the rate of contraction is lower than it has been. Thus, the outlook is therefore precarious, but it would not be surprising to see a small bounce next week with prices finishing a bit higher.

Source:

Mick Wheeler, UK

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