The Russian invasion of Ukraine had a devastating effect on all major markets on Thursday, pushing most sharply downwards. In the rush to find a safe haven, speculators abandoned positions in markets which they consider carry a high degree of risk. As a result, coffee prices fell sharply on Thursday, with arabica losing 9.65 cents/lb on the day. They did recover a bit on Friday but only marginally. Over the week arabica coffee prices lost 7.35 cents/lb while robusta prices lost $77/ton (3.50 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 about 50 to 55 toea/kg lower than what they were last week.
The invasion certainly sent shockwaves around the world and will certainly have long-term consequences for the world economy but will also have serious consequences for the coffee market. There was a booming, thriving and growing coffee market in Ukraine which will be severely dented by the invasion. The sanctions being imposed on Russia by the West will have significant impact on the fertiliser market as Russia is a major supplier of fertilisers, especially potassium. Brazil for example is said to import almost 25% of its fertiliser requirements from Russia and other producing nations are in a similar situation. This may have a long-term effect on global output, but equally the exclusion of Russia from the banking Swift system will also affect the country’s ability to import coffee and thus may dent demand in the short-term. So, the overall effect is, at this moment in time, somewhat hard to gauge. In other news ECOM has published its latest forecast of global production for the 2022/23 coffee year estimating the total at 169.5 million bags, up 10.2 million bags from last year. Demand was forecast at 171 million bags, up 1.75 million bags year on year. This suggest that they believe that there will be a supply deficit in 2022/23 of 1.5 million bags, following a deficit of 10.8 million bags which they have predicted for the 2021/22 coffee year. Brazil’s 2022/23 coffee crop has been forecast at 63.8 million bags, up just over 9 million bags from the 54.7 million bags they believe was produced last year. Certified stocks continued to fall on the New York exchange this week, falling below 1 million bags, despite the fact that there was a significant amount delivered for grading last week.
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 overall physical differentials appear to have been relatively steady. Brazilian 3/4’s remain at minus 22; Honduras HG’s at plus 25; Kenya AB FAQ’s at plus 90/110; and Colombian UGQ’s at plus 60; without any update on PNG Y1’s, I would guess that they might still be steady at around plus 1. Had an exporter fixed on Friday in New York for May/June delivery he may have been able to secure a price between 238.50 cents/lb and 243.60 cents/lb.
In these uncertain times it is rather difficult to be positive about the outlook for coffee but there have been some encouraging signals which suggest that it is not all doom and gloom. The price increase on Friday although small was positive and the fundamental outlook has not changed too significantly. Much will depend on what happens in Ukraine over the next week or so but the fact that Russia is asking for talks is promising. Nevertheless, it can be anticipated that both coffee markets will be extremely volatile reflecting the different twists and turns in this dreadful drama, but with luck prices should improve a bit over the week. maw