Somewhat surprisingly, both markets came under heavy speculative selling pressure this week, despite the publication of a lower than anticipated crop estimate from CONAB. Some of this selling pressure was in response to a higher US dollar, which also hit a number of other commodities this week, but can also be attributed to the larger than expected rise in GCA stock figures published last Friday. Arabica coffee prices lost 4.05 cents/lb over the week while robusta coffee prices lost $43/ton (1.95 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 30 toea/kg lower than what they were last week.

The publication of the results of CONAB’s first survey of the 2021/22 coffee crop in Brazil on Thursday did briefly reverse the downward trend in prices seen last week, but it is clear that the market treats CONAB figures as somewhat unreliable. CONAB forecast that production in 2021/22 should be between 43.8 million and 49.5 million bags, between 21% and 30%, lower than in 2020/21. Arabica output is forecast to be between 29.7 million bags and 32.9 million bags, a fall of between 32.4% and 39.1%, while robusta (conillon) output is put between 14.0 million bags (roughly the same as this year) and 16.6 million bags, up 16% on 2020/21. These figures strongly suggest that supply will be tighter next year than many were envisioning just a few weeks ago. This is especially welcome as Brazil’s Coffee Exporters Association, CeCafe, reported this week that Brazil exported 44.5 million bags of coffee, including green coffee, soluble coffee and roasted & ground, in calendar year 2020, a new historical record for exports for the year and 9.4% higher than last year. Nestle announced this week that it plans to responsibly source 100% of the coffee used in its brand Nescafé by 2025 and to be able to trace the coffee used back to an identified farmer group.

Once again, I have not been able to access any formal reports from Traders this week, but other sources of data (which I cannot stress enough are not as reliable) suggest that there may have been some but not that much movement in physical price differentials this week. Brazilian 3 /4’s, are apparently lower at around minus 24; but Honduras HG’s, are steady at plus 25; Kenya AB FAQ’s, also appear unmoved at plus 75/90; Colombian UGQ’s however appear to be slightly higher at plus 50; while PNG Y1’s also appear to be slightly higher at plus 8. If an exporter had fixed a price on Friday for May/June delivery, he should have secured a price somewhere between 133.00 and 136.25 cents/lb.

This week’s decline was very much unexpected and whilst this may have been the result of many factors, it is surprising that CONAB’s low estimate of Brazil’s next crop, although discounted by many, did not have a more significant or longer lasting impact than it did. Nevertheless, the forecast suggests that things will be much tighter in the year ahead, something which has been backed up by a number of other forecast made in the last few weeks by trade houses, banks and other agencies, all of which point in the same direction, although not to the same extent. Other forecasts will be released over the next few weeks and it will be interesting to see which one tips the balance. The outlook therefore remains somewhat unclear although the tighter outlook suggests there will be some resistance to any major move downwards. Prices therefore should not retreat any further although whether they will move upwards is a different matter altogether.