Both markets floundered a bit this week, not really sure which direction to move in and reacting to very short-term influences. Concern over the continuing dry weather in Brazil pushed prices up on Tuesday and Wednesday but news of rain in some parts of Brazil pushed prices back downwards. A strong US dollar did not help but a forecast of a global deficit next year from ECOM certainly unsettled the market. Arabica coffee prices lost 1.20 cents/lb over the week while robusta coffee prices gained $9/ton (0.40 cents/lb). In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea over the week to come will probably be around 10 toea/kg lower than what they were last week.
ECOM, has forecast 2020/21 global production at 164.5 million bags, 4.6% lower than the 172.5 million bags they forecast for 2020/21. They estimate Brazil’s upcoming harvest at 54.7 million bags, down 21.9% while Vietnam’s production is forecast to be higher at 35 million bags, up from 29 million bags this year. They put global demand at 171 million bags, implying a supply deficit of 6.5 million bags for the upcoming crop year. The IMF has forecast that the global economy will grow 5.5% in 2021 and 4.2% in 2022. This is 0.3% higher than their previous forecast, reflecting expectations that the successful rollout of the various new vaccines will boost economic activity across the globe, but particularly in the larger economies. This would certainly help boost demand for coffee. This is important because Euromonitor confirmed this week that coffee consumption in the US fell in 2020 by around 5%, although softened the blow by adding that it did so less than many other beverages. They predict, however, that there will be a strong recovery during 2021 although probably not until the end of the year. Starbucks reported their latest quarterly results this week showing that global comparable store sales fell 5%, driven by a 19% decrease in comparable transactions, but partially offset by a 17% increase in average purchases.
Once again, I have not been able to access any formal reports from Traders this week, but other sources of data (which I cannot stress enough are not as reliable, nor unfortunately as up to date) suggest that physical price differentials have been relatively stable this week. Brazilian 3 /4’s, are apparently slightly higher at around minus 23; But Honduras HG’s, are steady at plus 25; as are Kenya AB FAQ’s at plus 75/90; Similarly, Colombian UGQ’s continue at plus 50; and PNG Y1’s also appear to be unmoved at plus 8. If an exporter had fixed a price on Friday for May/June delivery, he should have secured a price somewhere between 132.20 and 134.80 cents/lb.
Many market participants, especially speculators, seem unwilling to accept the fact that Brazil’s crop will be significantly lower this year and the global supply/demand balance will be a lot tighter. Indeed, even those that accept that Brazil’s crop will be lower are suggesting that this may be compensated to a degree by a higher Vietnamese crop. The evidence on that latter fact is sketchy to say the least. The outlook therefore remains somewhat opaque with all the signs suggesting that the market should go higher but somehow, at the moment, it lacks the necessary momentum to do so. It may therefore be a few more weeks before we see any significant movement in any direction and for the immediate future there appears to be every chance that the market will remain range-bound. Consequently next week prices will probably be very close to where they are now.