Weekly Market Report – 27 June 2021

Forecasts of a cold front moving into Parana next Wednesday forced process sharply up on Friday but the threat of a frost in coffee growing areas remains relatively low. Prices were also helped by a strengthening Brazilian Real which discouraged many Brazilian growers from selling. Arabica coffee prices gained 5.85 cents/lb over the week while robusta prices rose by $63/ton (2.8 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 40 and 45 toea/kg higher than what they were last week.

The cold front is forecast to last about 3 days and to linger in the southern areas of Parana, well below the coffee belt; but while it is anticipated that it will warm up thereafter, some cold weather is scheduled to hit the South of Minas during the week after. The overall threat level is considered low, but it was sufficient to spook some of those holding a short position to take out some insurance. The USDA published its’ bi-annual coffee report on Monday putting 2021/22 world coffee production down 11.0 million bags on what they forecast for last year at 164.8 million bags. The decline is attributed primarily to the fall in Brazilian output which has been caused by the combined effect of it being an off-year in the arabica crop biennial cycle and the dry weather seen earlier in the year which has affected total production. They believe that global inventories will drop 7.9 million bags to 32.0 million bags. World exports are expected to be down 4.8 million bags to 115.5 million bags, but global consumption is seen rising 1.8 million bags to 165.0 million bags, with the largest increases occurring in the European Union, the United States, and Brazil. The harvest in Brazil this year seems to be slightly behind schedule with the Brazilian agency Safras and Mercado reporting that so far 40% of the crop has been harvested. This is a little slower than last year when 41% of harvest had been picked, but well below the five-year average of 44%.

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. Overall movements in physical price differentials appear to have been mixed this week. Brazilian 3 /4’s, are slightly lower at around minus 23; Honduras HG’s are steady at plus 25; as are Kenya AB FAQ’s at plus 110/120; Colombian UGQ’s are slightly higher at plus 57; but PNG Y1’s appear slightly lower at plus 9. If an exporter had fixed a price on Friday for September /October delivery, he should have secured a price somewhere between 163.60 and 167.25 cents/lb.

Unfortunately, this week’s rise in prices may well prove to be only temporary especially if temperatures in Brazil remain as forecast. Although even if there was a light frost, the areas being threatened are no longer significant production areas, so the damage would inevitably be limited. Exports from both Brazil and Colombia were significantly down during May and while that should mean a bounce in exports over the next couple of months, the shortage of containers worldwide and the increase in freight rates may well limit the ability of exporters in those countries to export as much as they would like. Consequently, the outlook remains somewhat precarious and if a frost does hit then prices will appreciate. But even if temperatures do not fall that low, there remain important considerations which may slow down any decline and may even be sufficient to keep prices very close to where they are now.

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