Prices see-sawed throughout the week but finished the week lower thanks mainly to continued beneficial weather and news that this had improved the prospects for next year’s crop in Brazil. Arabica coffee prices finished the week down 3.35 cents/lb with the second position (December) for arabica closing the week at 158.20. Robusta coffee prices followed a similar path but lost more heavily on the days that prices fell and only managed a modest bounce on the days that prices rose. Consequently, by the end of the week robusta coffee prices had fallen by $212/ton (9.60 cents/lb). In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea next week, will probably be about 25 toea/kg lower than they were last week.
At a conference in Brazil various speakers suggested that the excellent condition of the trees together with a high number of nodules seen on each branch augers well for the development of next year’s crop. They did however note that the threat of the El Nino bringing excessive rain to many areas of Brazil may well not only limit the size of the crop but might also affect quality as it has the potential to lead to multiple flowering. Reports suggest that in some robusta growing areas there has already been a good flowering. In their latest bulletin the IMF have predicted that global growth will fall from an estimated 3.5% in 2022 to 3.0% in both 2023 and 2024. Furthermore, although they anticipate that global inflation will fall from 8.7% in 2022 to 6.8% in 2023 and to 5.2% in 2024, such rates are still very high by historical standards and suggests that the cost-of-living crisis will continue for at least the next couple of years. In addition, they also warn that while inflation should fall, there is a chance that it could, in fact, rise if further shocks occur, including those from an intensification of the war in Ukraine and extreme weather-related events. Either way this is bound to have an impact on coffee consumption going forward.
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. Movements in physical price differentials have been mixed this week, but all movements have been relatively limited. Brazilian 3/4’s are unchanged at at minus 15; Honduras HG’s, however, are down 2 cents/lb at plus 13; Kenya AB FAQ’s, remain at between plus 45 and plus 70; but Colombian UGQ’s are slightly lower at around plus 34. Without any update on PNG Y1’s, I would guess that they might also be slightly lower at around plus 2/3, but this remains just a guess. Therefore, had an exporter fixed on Friday in New York for November/ December delivery he may have been able to secure a price between 159.75 cents/lb and 164.20 cents/lb. This week’s fall is of concern, but it appears that most of the market activity seen this week can be attributed to speculators with both origins, wanting higher prices, and roasters, wanting lower prices, sitting on the sidelines. How long such a stand-off will last is hard to predict, but does suggest that further volatility is inevitable, especially as everything is pointing to a surplus next year, but this is dependent on the weather remaining favourable. This is by no means a given, so whilst the outlook is negative, the prospect of the El Nino will provide some support. Prices may therefore end the week lower but hopefully not by much.
Source:
Mick Wheeler, UK.