Weekly Market Report 24th September 2023

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Weekly Market Report 24th September 2023

It was a very volatile week with prices rising sharply at the start of the week, but retreating significantly during the latter half of the week, virtually, but not quite, wiping out the gains they had both made the week before.  Much of this downward pressure can be attributed to macro-economic factors but a forecast by CONAB, although notionally positive for the market, was seen as contributing to the decline.  Arabica coffee prices lost 7.50 cents/lb with the second position (March 24) closing at 152.25 cents/lb.  Robusta coffee prices followed the arabica market downwards ending the week down $95/ton (4.30 cents/lb) over the week.  In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea next week, will probably be about 50 to 55 toea/kg lower than last week.

Although many Central Banks decided against raising interest rates this week, the fact that the US Federal Reserve also announced that further interest rate hikes before the end of the year could not be ruled out, worried many financial market players and that concern certainly spilled over into the coffee market.  The CONAB forecast released this week puts Brazil’s 2023/24 coffee crop at 54.36 million bags, almost 7% higher than last year.  Whilst this was widely expected the thing that appears to have concerned the market is that they have raised their arabica coffee output estimate to 38.16 million bags, which was higher than anticipated. Crucially this increase is attributed to an increase of 2.4% in the area in production, combined with an estimated gain of 13.9% in productivity. It is the rise in productivity which is key here.  On the other hand the Commitment of Traders report released this week showed that Non-commercials (Speculators) increased their long position by 1,604 lots to 32,421 lots while decreasing their short position by 7,805 lots to 48,046 lots, resulting in a net short position of 15,625 lots in the week to September 19.  This shows that while speculators are betting on the market falling further, they are not as confident as they were a few weeks ago.

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 been steady this week despite the high volatility seen in the Futures markets. Brazilian 3/4’s are steady at minus 13; similarly, Honduras HG’s, are also steady at plus 12; Kenya AB FAQ’s, are unchanged at between plus 60 and plus 75; while Colombian UGQ’s are also unmoved at plus 26.  Without any update on PNG Y1’s, I would guess that they are steady at around plus 2, but as I cannot keep stressing enough this remains just a guess. Therefore, had an exporter fixed on Friday in New York for December/January delivery he may have been able to secure a price between 152.05 cents/lb and 157.70 cents/lb.

This week’s volatility reflects the uncertainty that exists about the supply/demand balance going forward.  The CONAB report shows that productivity has increased significantly which suggests that if there are favourable weather conditions then next year’s crop could be larger than many are anticipating.  But it has been dry and hot in Brazil this week and that looks like continuing next week, although rain is forecast to return in early October.   However the weather models keep changing so nothing is certain.  Consequently the outlook remains uncertain, but it looks like prices may continue their downward path.                                                                                                                                                                                

Mick Wheeler, UK.

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