Weekly Market Report – 25 July 2021

The forecasters got it wrong and there was indeed a heavy frost over a much greater area of Brazil than had been foreseen. Estimates suggest that as much as 5 million bags might have been lost from next year’s crop. Consequently, both markets leapt significantly upwards with arabica coffee prices gaining 30.60 cents/lb to reach a record six and half year high. It should also be pointed out that on Friday prices reached a high of 212.40 cents/lb before falling back just over 20 cents/lb to close at 191.95 cents/lb. Robusta prices were naturally dragged upwards by the rise in New York but nowhere near to the same extent gaining $132/ton (6.0 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 between 220 and 230 toea/kg higher than what they were last week.

Frosts were recorded across many areas in the south of Brazil including Sao Paulo, Minas Gerais and Mato Grosso do Sul, causing widespread damage that will not only affect next year’s crop but also to at least the next 2 crops after that. The frosts come at a time when the crop is already under stress due to the drought conditions present throughout coffee growing regions of Brazil. There are obviously varying estimates of the damage that has been caused but estimates range from around 4 million bags to over 6 million bags, with the majority putting the damage at between 4.4 million bags and 5 million bags. I attach a couple of pictures at the end of this report which clearly show the extent of the damage. There is a huge concern within the industry that the trade will be plagued by defaults not only from Brazilian farmers who no longer have any coffee to supply against forward contracts they may have entered into but also by exporters in other countries. The massive price increase means that any exporter who has entered into a forward contract but has yet to buy the coffee and has not hedged, will be unable to fulfil their obligations. There was an interesting piece of research published this week that suggested daily consumption of 2 to 3 cups of coffee is associated with a lower incidence of covid-19. The study was reviewed by the journal on human nutrition “Nutrients”. However, the evidence is fairly thin but is, nevertheless, positive.

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. However, given the massive price hike this week, physical differentials will have been under heavy downward pressure and are, probably, lower than reported here. Brazilian 3 /4’s, are down sharply at minus 28/29; Honduras HG’s are also down at plus 22; Kenya AB FAQ’s appear steady at plus 110/120; as do Colombian UGQ’s at plus 58; while PNG Y1’s also seem to be unmoved at plus 9. If an exporter had fixed a price on Friday for September /October delivery, he could have secured a price somewhere between 199.25 and 221.40 cents/lb.

The degree of volatility seen on Friday is evidence of how nervous the market is. The weather forecasters are suggesting that another cold front could hit Parana next weekend and thus another frost cannot be ruled out. In addition, another cold front is forecast for mid-August, which would be late for a frost but by no means out of the question. Consequently, volatility will remain high, especially if the forecasts change in any way and thus the outlook is impossible to predict, but with luck prices should remain close to where they are now.

The forecasters got it wrong and there was indeed a heavy frost over a much greater area of Brazil than had been foreseen. Estimates suggest that as much as 5 million bags might have been lost from next year’s crop. Consequently, both markets leapt significantly upwards with arabica coffee prices gaining 30.60 cents/lb to reach a record six and half year high. It should also be pointed out that on Friday prices reached a high of 212.40 cents/lb before falling back just over 20 cents/lb to close at 191.95 cents/lb. Robusta prices were naturally dragged upwards by the rise in New York but nowhere near to the same extent gaining $132/ton (6.0 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 between 220 and 230 toea/kg higher than what they were last week.

Frosts were recorded across many areas in the south of Brazil including Sao Paulo, Minas Gerais and Mato Grosso do Sul, causing widespread damage that will not only affect next year’s crop but also to at least the next 2 crops after that. The frosts come at a time when the crop is already under stress due to the drought conditions present throughout coffee growing regions of Brazil. There are obviously varying estimates of the damage that has been caused but estimates range from around 4 million bags to over 6 million bags, with the majority putting the damage at between 4.4 million bags and 5 million bags. I attach a couple of pictures at the end of this report which clearly show the extent of the damage. There is a huge concern within the industry that the trade will be plagued by defaults not only from Brazilian farmers who no longer have any coffee to supply against forward contracts they may have entered into but also by exporters in other countries. The massive price increase means that any exporter who has entered into a forward contract but has yet to buy the coffee and has not hedged, will be unable to fulfil their obligations. There was an interesting piece of research published this week that suggested daily consumption of 2 to 3 cups of coffee is associated with a lower incidence of covid-19. The study was reviewed by the journal on human nutrition “Nutrients”. However, the evidence is fairly thin but is, nevertheless, positive.

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. However, given the massive price hike this week, physical differentials will have been under heavy downward pressure and are, probably, lower than reported here. Brazilian 3 /4’s, are down sharply at minus 28/29; Honduras HG’s are also down at plus 22; Kenya AB FAQ’s appear steady at plus 110/120; as do Colombian UGQ’s at plus 58; while PNG Y1’s also seem to be unmoved at plus 9. If an exporter had fixed a price on Friday for September /October delivery, he could have secured a price somewhere between 199.25 and 221.40 cents/lb.

The degree of volatility seen on Friday is evidence of how nervous the market is. The weather forecasters are suggesting that another cold front could hit Parana next weekend and thus another frost cannot be ruled out. In addition, another cold front is forecast for mid-August, which would be late for a frost but by no means out of the question. Consequently, volatility will remain high, especially if the forecasts change in any way and thus the outlook is impossible to predict, but with luck prices should remain close to where they are now.

Scroll to Top