Although it was clear last week that coffee prices on both markets would appreciate a bit this week, the size of the jump especially in the arabica market was certainly larger than anticipated. It is difficult to pinpoint what sparked the buying spree, but firmer South American currencies have been cited as one reason, but clearly there is more to it than that. Over the week arabica coffee prices gained 14.30 cents/lb, with the second position closing the week at 170.05 cents/lb. The robusta market also closed higher, but did not see anywhere near the same boost as in the arabica market, but even so the gain was certainly larger than expected rising $72/ton (3.25 cents/lb). In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea next week, will probably be between 110 and 115 toea/kg higher than what they were last week.
Some reports suggest that roasters are beginning to re-enter the market and have been buying at what they see as attractive prices, but it seems fairly obvious that speculators aware that the upcoming Brazilian crop will not be as large as some analysts have predicted believe that more upward movement is possible. Another reason for the surge this week was news that the US economy expanded at a faster rate than expected, growing by 2.9% during the fourth quarter of 2022. This has raised hopes that that economy could achieve a soft landing, although the downside of this could be that it will dampen expectations of an interest rate cut later this year. A number of analysts are now predicting that the crop in Vietnam might be as much 10% below last year’s total. As a result there has been a noticeable increase in physical price differentials which have hardened by as much as $20/ton and there was certainly a lower than expected surge in sales by farmers prior to the Tet holidays than has been seen in previous years. The latest Allegra Strategies report shows that the UK branded coffee shop market saw sales grow by 11.9% over the last 12 months, with the number of outlets expanding by 4.4% to reach 9,885 outlets. Nevertheless, total sales remain below pre-pandemic levels with footfall in city centres below pre-pandemic levels, reflecting, in part, the growth in home working.
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. Brazilian 3/4’s have steadied a bit, but are still slightly higher at plus 12/13; Honduras HG’s appear to be steady at plus 38; as are Kenya AB FAQ’s at between plus 65 and plus 90; Colombian UGQ’s are also steady at plus 61. Without any update on PNG Y1’s, I would guess that they might also be steady at plus 4. Therefore, had an exporter fixed on Friday in New York for April/May delivery he may have been able to secure a price between 170.10 cents/lb and 174.30 cents/lb.
The jump in prices this week demonstrates the uncertainty surrounding the outlook for supply and demand. CONAB’s crop forecast last week will be followed up over the next month or so by more forecasts by various trade houses and it will be interesting to see if they all start to lower their expectations. However, there are also some worrying signals about demand with European port stocks rising by over 520,000 bags in the year to October and with warehouse keepers reporting a lower than usual seasonal drawdown. The outlook, therefore, remains murky. With luck prices will continue to rise or remain very close to where they are now.
Source:
Mick Wheeler, UK.