Both coffee markets remain very volatile, despite the fact that the repositioning by the large speculative funds seeking safer havens is now virtually finalised. Even so what is happening in Ukraine continues to be unsettling. In addition, there have been a new report suggesting that output in Brazil may well be below earlier expectations. Over the week arabica coffee prices gained 2.35 cents/lb while robusta prices fell by $19/ton (0.90 cents/lb). In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea next week probably be around 15 to 20 toea/kg higher than what they were last week.
The small rise in arabica coffee prices this week may also have reflected the rise in the value of many Latin American countries’ currencies which have appreciated following the rise in oil prices seen as a result of the sanctions against Russian oil. In their latest report, Rabobank has estimated that the 2022/23 Brazilian coffee crop will be 64.5 million bags, down from their previous estimate of 66.5 million bags. Arabica output has been forecast at 41.4 million bags and conillon (robusta) at 23.1 million bags. It does however need to be pointed out that despite this downward revision, the Rabobank projection still remains the highest estimate so far, with other industry estimates ranging from 55.7 million bags to 63.8 million bags. According to some weather forecasters the upcoming winter in Brazil should be cooler than usual with a higher-than-average risk of frost. However, the longer-term forecasts suggest that the weather should encourage an early flowering which should be successful. They also suggest that during August and September there is a good chance that the country will see higher than average rainfall. The Israeli food company “Strauss Group” reported this week a rise in their October-December quarter net profit, to $32 million. Strauss is one of the market leaders for roast and ground coffee in Central and Eastern Europe but also in the domestic market in Brazil. Overall, its’ coffee sales jumped 13.6% over the year.
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. Over the week physical coffee differentials appear to have strengthened a little. Brazilian 3/4’s are now quoted at minus 16; Honduras HG’s appear to be steady at plus 33; as are Kenya AB FAQ’s at between plus 75 and plus 100; while Colombian UGQ’s are higher at plus 65. Without any update on PNG Y1’s, I would guess that they might be steady at around plus 2/3. Had an exporter fixed on Friday in New York for June/July delivery he may have been able to secure a price between 221.35 cents/lb and 224.90 cents/lb.
The outlook remains very precarious but while there are some grounds for optimism, there are also some signals which do not auger well. Many countries are struggling to secure supplies of fertiliser, especially urea as a result of the trade embargo on Russia and the longer this goes on, the greater the chance that this will impact global output negatively. On the other hand, the war inevitably will have a negative impact on consumption but for the moment both India and Vietnam continue to ship coffee to Russia, so the exact impact remains somewhat hard to assess. The volume of stocks certified against the New York Exchange continues to rise which suggests that roasters are well covered for the time being. It therefore looks as though prices will continue to be volatile next week but with luck will end up being very close to where they are now. maw