Weekly Market Report – 28 February 2021

Forecasts of heavy rain in Brazil plus the publication of a further forecast of a lower Brazilian arabica crop forced coffee prices much higher this week. The path upwards was not, however, altogether smooth with sizeable corrections forcing prices down on Wednesday and Friday. Nevertheless, both markets finished the week much higher. Arabica coffee prices gained 8.35 cents/lb while robusta coffee prices jumped $104/ton (4.72 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 around 65 toea/kg higher than what they were last week.

A weaker US dollar may also have played a part in this week’s rise, although this may have been tempered by a more general move downwards in the value of many Latin American currencies. The La Nina is certainly having a major impact on the weather in Central and South America with heavy rain being reported in Brazil, Colombia, Guatemala and Honduras. There were fears, which so far appear unrealised, that the heavy rain would bring floods to many parts of Brazil but in particular to the port of Santos through which a significant amount of Brazilian exports are shipped. In their most recent report, Rabobank has downwardly revised their forecast for Brazil’s 2021/22 coffee crop to 56.2 million bags, from their previous estimate of 57.4 million bags. The reduction is due to a new forecast of 36 million bags for the arabica crop, due to what they term “lackluster rains” after the first week of December. Overall, Rabobank sees a 2.6 million bag deficit for the 2021/22 crop year, with the global crop now totalling 164.5 million bags, while they expect demand to recover to 167.1 million bags. Indeed many analysts are now pointing to the successful rollout of COVID 19 vaccines in many countries and increasing evidence of their effectiveness and are therefore forecasting that demand will resume its upward surge.

Once again, I have not been able to access any formal reports from Traders this week, but other sources of data (which I cannot stress enough are not as reliable, nor unfortunately as up to date) suggest that although there has been very little movement in physical price differentials for most origins this week, there has been some significant moves in others. Brazilian 3 /4’s, appear slightly lower at around minus 23; Honduras HG’s, however continue at plus 22; On the other hand Kenya AB FAQ’s appear to be much higher at plus 90/105; Colombian UGQ’s remain at plus 50; while PNG Y1’s seem to be unmoved at plus 8/9. If an exporter had fixed a price on Friday for June/July delivery, he should have secured a price somewhere between 145.45 and 149.45 cents/lb.

Some market commentators are attributing this week’s rise to a report that suggested that there is a much greater chance of a frost in Brazil this year. Such a forecast this far away from the Brazilian winter seems somewhat farfetched but the longer-range forecasts suggest that there may well be more cold fronts hitting Brazil than normal. Even so it is still far too early to suggest that what the weather may be in 3 to 4 months’ time, so for now this probably should be discounted This week’s rise following on from last weeks means that prices have gained almost 15 cents/lb in 2 weeks and there appears every chance that the rally may continue albeit possibly at a slightly slower rate. Prices should therefore finish higher next week but any increase is likely to be less than we have seen of late.

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