Weekly Market Report – 01 January 2023

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Weekly Market Report – 01 January 2023

HAPPY NEW YEAR!!

As expected, both markets were fairly volatile this week. Trading volumes, although slightly lighter than normal, were better than anticipated.  Even so prices oscillated day to day mainly reflecting fluctuations in the value of the Brazilian Real as well as year-end book squaring by the Funds.  Over the week arabica coffee prices lost 1.80 cents/lb, even though on some days the fluctuation in prices was four times that.  Anyway, the second position closed the year at 166.95 cents/lb.  Robusta prices were equally volatile ending the week down $79/ton (3.60 cents/lb).  The potential squeeze on the January position although still possible appears to be weakening given that the spot position premium has shrunk to $70/ton, down $14/ton from the $84/ton premium seen last week.  In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea next week, will probably be between 10 and 15 toea/kg lower than what they were last week.

Despite the volatility, it was a very quiet week with very little fundamental news to change the outlook which suggests that market participants are still unclear how the market will develop in 2023.  Brazil continues to see significant rain contrary to the earlier warnings that the La Nina would bring dry weather.  Various reports suggest that the consensus of opinion is that Brazil will produce a crop of between 60 and 65 million bags.  However, price differentials for Brazilian coffees continue to strengthen and are reaching highs not seen for many years which suggests that despite high exports, there are problems in the internal supply chain with growers reluctant to sell at today’s levels. However the current weakness in the market clearly reflects concern about global demand and in particular about global economic activity.  Most countries are experiencing high cost of living inflation and with China going through a another major COVID outbreak, those concerns appear to be justified.

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 although none have weakened, which suggests that origins are not prepared to chase prices down.  Brazilian 3/4’s are much higher at around at minus 4/5; Honduras HG’s are steady at plus 37; as are Kenya AB FAQ’s at between at plus 65 and plus 90; Colombian UGQ’s are slightly higher at plus 61.  Without any update on PNG Y1’s, I would guess that given availability is limited they might also be steady at around plus 3 /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 167.90 cents/lb and 174.80 cents/lb.

Both markets will be closed on Monday so it will be another short trading week.  The outlook however remains bearish.  One positive feature however is the fact that very little additional coffee has been delivered for grading against the New York market and of what has been delivered around 40% is failing.  If nothing changes then while the total volume of stocks will rise, the numbers suggest that the total will not surpass the 1 million bag mark, which historically is on the low side.  This may lend some support to the market, but not much.  Prices will continue to be volatile but with luck will remain very close to where they are now.                                                                             

Source:
Mick Wheeler, UK

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