A very volatile week with arabica coffee prices soaring upwards by over 13 cents/lb during the first 2 days of the week only to lose most of that on Wednesday. They moved up again on Thursday only to retreat again on Friday. Even so they still managed to finish the week 3.45 cents/lb higher with the second position (May 24) closing at 190.25 cents/lb. The robusta coffee market mirrored New York’s gyrations, but the daily movements were far more muted, ending the week just $12/ton (0.55 cents/lb) higher. In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea next week will probably be between 25 and 30 toea/kg higher than they were last week.
Analysts attribute this week’s volatility primarily to technical factors with the commitment of traders’ report showing that roasters have increased their short position and reduced their long position. In itself this would not be enough to trigger such volatility, but it appears that this left the roasters vulnerable to any upward spike created by speculators which would force them to cover the move and accelerate any upward movement. The fact that the spike only lasted less than 24 hours suggests there was little fundamental basis for such a move and that the analysts may well be correct. The USDA published its biannual World Coffee Report this week putting global production for 2023/24 at 171.4 million bags, down 3.06 million bags (17%) from their June estimate of 174.34 million bags. World consumption is estimated at 169.5 million bags, down 0.4% from the June estimate of 170.23, suggesting a supply surplus of 1.9 million bags compared to the 4.11 million bag surplus previously forecast. Brazil’s harvest next year is forecast up 3.7 million bags at 66.3 million with arabica output up 5.1 million bags at 44.9 million bags. Vietnam’s production is forecast at 27.5 millionbags up 300,000 bags on the USDA’s earlier estimate, while Colombia’s output is put at 11.5 million bags, Indonesia’s at 9.7 million bags and India at 6 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 be under some pressure with Brazilian 3/4’s lower at minus 17; Honduras HG’s are lower at plus 4; Kenya AB FAQ’s continued to be unchanged at between plus 60 and plus 75; while Colombian UGQ’s are steady at plus 11. Without any update on PNG Y1’s, I would guess that they might also be slightly lower at around minus 4, although I must stress this remains just a guess. Therefore, had an exporter fixed on Friday in New York for April/May delivery he may have been able to secure a price somewhere between 182.85 cents/lb and 187.60 cents/lb.
The crop in Brazil appears to be developing well and gentle rain is forecast throughout the next 2 weeks. The downward revision in the forecast by the USDA suggests that things might well be tighter than initially thought, although both the USDA and ICO are pretty close when it come to the overall forecast of a small surplus despite the fact that their forecasts for individual countries differ. Both markets will be closed on Monday and Tuesday, and it can therefore be anticipated that trading volumes will be thin for the remainder of the week. This could lead to greater volatility, but there is a good chance that prices will end the week close to where they are now.
Source:
Mick Wheeler, UK.