Robusta coffee prices continued to be the star attraction reaching record highs during the week. News that rain was falling in Vietnam later in the week may have burst the bubble as values certainly started to drop, but it still too early to say whether this will have any real impact on the size of the next crop. New York, however, was certainly desperate to go lower and lost more than 10 cents/lb over the first two days of the week. It then recovered a bit on Wednesday and Thursday before resuming its downward path on Friday, losing 7.85 cents/lb over the week with the second position (July 24) closing at 224.00 cents/lb. Robusta prices, despite the turnaround later in the week, still gained $71/ton (3.20 cents/lb). Consequently, the differential between arabica and robusta has now narrowed to just 36 cents/lb. In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea next week will probably be between 60 and 65 toea/kg lower than what they were last week.
Although rain was reported as falling in the Dahlak region of Vietnam on Thursday and Friday, which some believe might well go some way to alleviating some of the dryness that has affected the coffee plantations in the country, the weather forecasts suggest that the wetter conditions will only last for the next few days. Whether this will be enough to correct any the harm already inflicted on the trees is hard to say, but there will need to be prolonged rain to refill the country’s depleted reservoirs. The rise in robusta coffee prices has also been fuelled by reports which suggest that due to extremely high temperatures in Brazil, the yields being achieved with the ongoing conillon harvest is significantly lower than expected as a result of the beans being smaller than usual. Analysts had forecast that the Brazilian conillon (robusta) crop would be between 21 to 23 million bags, but some are now suggesting that it might be below 20 million bags. The tension between the new Colombian President and the FNC continues with the Agricultural Minister saying this week that the FNC is experiencing a strong financial crisis, but the FNC dispute this saying that the Government is unwilling to make the necessary investments in the industry and is blaming the FNC for its failures.
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 been steady this week. Brazilian 3/4’s are steady at minus 14; as are Honduras HG’s at plus 6; Kenya AB FAQ’s appear to be unmoved at between plus 40 and plus 65; while Colombian UGQ’s continue to be quoted at plus 14. Without any regular updates on PNG Y1’s I can only guess that they remain at around plus 4. Therefore, had an exporter fixed on Friday in New York for August/September delivery he may have been able to secure a price somewhere between 224.00 cents/lb and 229.00 cents/lb.
Given the dramatic rise we have seen in both markets over the last month or so, it was inevitable that profit-taking would at some point force a major correction. Clearly the rain in Vietnam has been the trigger for the sell off but there remain lingering doubts about whether the rain is too little too late. And clearly the reports that the conillon crop in Brazil will be smaller than anticipated adds to the uncertainty. Further falls in both markets can be anticipated when the markets open for the new week, but while speculators have reduced their overall long position, they still hold a net long position of 50,705 lots, which is significant. Prices will probably end the week lower but probably not by much.
Source:
Mick Wheeler, UK.