Although I thought that prices might rise this week, I certainly did not expect to see a leap of over 11% in the value of arabica. Arabica coffee prices climbed every day, bar Friday, to gain an impressive 24.75 cents/lb over the week. Robusta coffee prices also rose (but seemingly reluctantly) to finish the week $58/ton (2.65 cents/lb) higher. In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea next week, will probably be between 180 and 185 toea/kg higher than what they were last week.
The incredible increase seen this week can be attributed to concerns about the current dry weather in Brazil, but more importantly to the lack of rain in any forecast. It did rain a few weeks ago, which appears to have prompted some early flowering, but now that it has turned dry, there are increased fears that the flowers will not be able to properly set. Aborted flowerings are common in Brazil, so in itself this would not normally be seen as a major problem, but without ample rains over the next 6 to 8 weeks, next year’s crop will be affected, which will be significant as it will be an “on-year” in the biennial cycle. Nevertheless, it is not unusual for it to be dry at this time of the year and whilst the La Nina phenomenon suggests that it may be dry over the next few months, nothing is certain. In their latest report, ECOM has forecast 2022/23 global coffee production at 165.1 million bags, down 2.1 million bags from their previous estimate. Demand is forecast at 169.7 million bags, suggesting a deficit of 4.6 million bags. Brazil’s 2022/23 crop was forecast at 61.9 million bags, up 13.2% from the 54.7 million bags produced last year. Interestingly while everyone focuses on the dry weather in Brazil, the Indian Coffee Board has reported that excessive rains have triggered concerns over crop losses for parts of India’s main coffee producing regions, although the Board has estimated the 2022/23 crop at 6.56 million bags, 15% higher than last year’s 5.7 million bags.
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. This week’s jump in futures prices will have impacted physical price differentials pushing them lower. Brazilian 3/4’s appear to be lower at around minus 17; Honduras HG’s have also come under pressure at plus 42; Kenya AB FAQ’s are seemingly unmoved at between plus 75 and plus 100; while Colombian UGQ’s are slightly lower at plus 74. Without any update on PNG Y1’s, I would guess (and it is just a guess) that they might also be slightly lower at around plus 5. Therefore, had an exporter fixed on Friday in New York for Dec/Jan delivery he may have been able to secure a price between 240.75 cents/lb and 246.90 cents/lb.
Friday’s small step backwards suggests that it is highly probable that some sort of correction to overall price levels might take place during the week to come but given that the fundamental outlook is unlikely to have changed much, there must a good chance that any correction will be relatively small. Certified stock numbers continue to rise which suggests that availability of coffee is beginning to ease a bit, but equally the number of bags pending certification is shrinking at an even faster rate, so it is probable that the market has already factored in the large delivery seen the week before last. Consequently while the immediate outlook looks rather precarious, in that prices might well finish lower next week, there is a very good chance that the market will retain most of the gains it made this week.
Source:
Mick Wheeler, UK.