Weekly Market Report 27th August 2023

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Weekly Market Report 27th August 2023

As anticipated coffee prices rebounded this week, but the recovery was not enough to regain what had been lost the week before. In part the recovery can be put down to reaction to the Commitment of Traders’ report that showed Funds have been adding to their short position which means that they will have to start buying soon to offset these positions.  But it also can be put down to a lack of selling by coffee origins at these new lows.  Arabica coffee prices finished the week up 4.30 cents/lb, with the second position (December) closing the week at 154.30 cents/lb.  Robusta coffee prices followed New York upwards, but the anticipated squeeze on the September position fizzled out when the premium over the November position collapsed during the week.  Robusta prices gained $74/ton (3.35 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 30 to 35 toea/kg higher than they were last week.

Another reason cited for the rise in prices this week is the market’s concerns about El Niño and the effect this will have on output in Brazil. The latest NOAA update suggests that the El Niño will be strong throughout the during September to November quarter bringing drier than normal conditions during the critical development period for the crop in Brazil. It is thought that this phenomenon could affect the robusta coffee-growing regions of Bahia and northern Espirito Santo, a region that accounts for over 80 % of national robusta production. The last time there was a strong El Niño in Brazil, in 2014 and 2016, robusta output fell by an average of 38%.  Rabobank revised their forecasts for the both the 2022/23 and 2023/24 Brazilian crops down slightly this week to 59.5 and 66 million bags, respectively.  In other news Starbucks announced this week that it will be making further long-term investment in the Chinese market with the aim of having at least 9,000 stores in the country by 2025. 

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 appreciated a bit in response to the Futures market dipping lower.  Brazilian 3/4’s are up a cent at minus 14; Honduras HG’s, are also higher gaining 2 cents to be quoted at plus 13; Kenya AB FAQ’s, are however steady at between plus 45 and plus 70; but Colombian UGQ’s are higher at plus 29.  Without any update on PNG Y1’s, I would guess that they might also be slightly higher at around plus 1. Therefore, had an exporter fixed on Friday in New York for November/December delivery he may have been able to secure a price between 153.00 cents/lb and 157.25 cents/lb.

The weather forecast suggests that there might be rain in many parts of Brazil over the next 10 days which could easily trigger an initial flowering.  If the weather however turns dry thereafter, as the forecast El Niño suggests it will, then this could cause the tree to abort most of the flowers formed.  This will not only affect total output but will also affect the quality of the crop.  Nevertheless, the market will react to any news of rain, probably by forcing prices down initially, but as has been shown in recent weeks, there is strong resistance at these lower levels mainly as a result of the longer-term El Niño concerns but also to the fact that consuming markets inventories remain low.  The outlook is therefore mixed.  There is a good chance that prices will come under pressure as soon as it rains, but thereafter prices may well start to appreciate and could even finish the week slightly higher.                                                                                                                         

Mick Wheeler, UK.

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