Weekly Market Report 30 October 2022

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Weekly Market Report 30 October 2022

For a third week in a row, coffee prices fell, plunging to a 14 month low. The main factors behind this collapse appear to be the threat of a recession in Europe, the escalation of the war in Ukraine as well as China’s covid lockdowns which combined appear to have raised fears of deteriorating demand. Arabica coffee prices lost 18.05 cents/lb over the week while robusta prices fell by $147/ton (6.67 cents/lb). In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea next week, will probably be between 125 and 130 toea/kg lower than what they were last week.

Adding to the downward pressure has the strengthening of the US Dollar against the Brazilian Real as well as continuing good rains throughout the coffee belt in Brazil. However, elsewhere the prospects do not appear so good with forecasts suggesting that Colombia’s upcoming harvest will be much lower than in previous years. Colombia is expected to produce around 12 million bags in the calendar year 2022, down from the 12.6 million bags produced last year hit by 28 months of consecutive rainfall. Indeed the rainfall has been so unusual that the Government of Colombia has begun compensating farmers hit by the extraordinary wet weather, through a range of measures including reductions in the cost of loans, reducing interest rates, extending credit periods as well as in some instances direct grants. Whilst the threat of a recession in the near future is very real, coffee companies continue to report growing demand with Tata Coffee Company India reporting that their coffee revenues in the Indian market grew 39% over the past 12 months. Similarly, the American based Keurig Dr Pepper reported strong results for the third quarter of 2022 with net sales increasing by 11.4% to $3.62 billion. This was driven by higher sales of coffee pods in the US Market but also by a 26.9% increase in coffee sales in Latin American markets.

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 continued to strengthen, once again partially offsetting the decline in Futures. Brazilian 3/4’s are up 2 cents at minus 13; Similarly, Honduras HG’s are also up 2 cents/lb at plus 39; Kenya AB FAQ’s appear to be slightly higher and are quoted at between at plus 75 and plus 90; whilst Colombian UGQ’s are also higher and are quoted at plus 68. Without any update on PNG Y1’s, I would guess (and it is just a guess) that they might also be higher at around plus 4. Therefore, had an exporter fixed on Friday in New York for Feb/March delivery he may have been able to secure a price between 169.95 cents/lb and 181.35 cents/lb.

Although the plunge this week was totally unexpected and indeed represents a major market correction, the reasons behind the collapse are purely speculative without any supportive hard evidence. Nevertheless whilst there is every reason to believe that the market is oversold, there is little evidence that the drive downwards has come to an end. Producers are clearly reluctant to sell at these prices, but a forecast 8% increase in exports from Brazil in October does not reinforce this perception. Consequently, whilst it would be easy to suggest that the plunge has been overdone and that a bounce is due, there is unfortunately equally no guarantees that the collapse may not continue. On balance I think that prices should recover next week, but I have been saying that for the last 2 weeks, so anything is possible.

Source:
Mick Wheeler, UK.

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