Weekly Market Report – 25th April 2021

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Arabica coffee prices rose strongly this week partly in response to more bullish reports from various financial institutions but also in response to a strengthening Brazilian Real. Some analysts also pointed to a hailstorm in Brazil which caused no major damage but was a powerful reminder to market participants that winter is approaching in Brazil. Arabica coffee prices gained 7.3 cents/lb over the week. Robusta prices followed New York upwards but rather begrudgingly gaining just $36/ton (1.55 cents/lb) over the week. In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea over the week to come will probably be around 50 to 55 toea/kg higher than what they were last week.

There were mixed results from major coffee companies this week with Coca Cola reporting that their coffee sales are under pressure falling by around 21%. This is not that surprising given that their major coffee activity centres on the Costa Coffee Chain, many stores of which remain closed or restricted to take away only. Nestle on the other hand which relies more on in-home consumption reported that coffee sales during the first quarter of 2021 continue to demonstrate the strong growth they had seen throughout 2020. Indeed, coffee was the largest contributor to the company’s growth, fuelled by strong demand for Nespresso, Nescafé and Starbucks products. It was also interesting to note that Nestlé plant scientists have developed a new generation of low carbon coffee varieties, through classical non-GMO breeding and by harnessing the plant’s natural biodiversity. Compared to standard varieties, the two new robusta varieties deliver up to 50% higher yields per tree. Because more coffee can be produced using the same amount of land, fertilizer and energy, the result is an up to 30% reduction in the CO2e (carbon dioxide equivalent) footprint of the green coffee beans. Since green beans account for 40-80% of the CO2e emissions of a cup of coffee, these breakthrough varieties significantly reduce the carbon footprint associated with coffee consumption.

I still cannot get access to any reliable regularly-published data on coffee price differentials, so once again I have had to use sources, the accuracy of which cannot be guaranteed. These other sources suggest that movements in physical price differentials may have been mixed this week. Brazilian 3 /4’s, appear to be slightly firmer at around minus 21; Honduras HG’s are steady at plus 20; as are Kenya AB FAQ’s at plus 100/110; Colombian UGQ’s may be slightly higher at plus 52; but PNG Y1’s appear to be unmoved at plus 8, possibly reflecting the lack of quotes usual at this time of the year. If an exporter had fixed a price on Friday for July/August delivery, he should have secured a price somewhere between 143.65 and 148.20 cents/lb.

It would be very easy to argue that this week’s price rise finally reflects the acceptance of the fact that Brazil’s crop will be significantly lower this year, but to do so would oversimplify the situation. It is true that Citibank raised its’ estimate of this year’s supply deficit from 7.5 million bags to 8.4 million bags this week, but in itself this does not explain the steady rise seen all week. Of greater significance is probably the rise in the value of the Brazilian Real and the fact that long range weather forecast all point to a harsh winter. Furthermore, there is now increasing evidence that overall consumption has not been hit as hard as many initially feared. The outlook therefore remains positive with prices continuing to rise.

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