Weekly Market Reporting

1.    1.0 Introduction

The Industry Operations Division of the Corporation is mandated to perform the regulatory function, corporate services and publish reports on the international and domestic market trends and developments. The core activities of the division are Licensing, Inspections, Export and Quality Controls, Economics, Marketing and Promotions. The division also provides other important support services to the Corporation including finance, human resource management, properties and general administration.

The Corporation’s Economics section is primarily responsible for collection, compilation and dissemination of information on coffee production, price and export statistics, based on data collected through compulsory daily and monthly returns submitted to the Corporation by all registered processors and exporters.

2.0   Production

Coffee production has increased on average by 3% per year from 650,000 (39,000 tonnes) bags since independence in 1975 to stabilize at 1.12 million bags until 2005. From 2006 to 2016 production has declined on average by 2% with a record drop in 2015 to 733,831 bags (44,030 tonnes). In 2016, soared to 1.13 million bags, 65% or more than half on 2015 production.

PNG coffee production in the last decade (2007-2016) average 995,000 bags (59,700 tonnes) a year. The peak production in the period was seen in 2011 (89,000 tons) while the lowest was in 2015 (44,030 tonnes). 

Production is dominated by village-based small farmers, who produced 85% of the annual crop. It is estimated that there are some 400,000 rural households in PNG that depend upon coffee to provide all or part of their income and about 70% of those living in rural areas. Plantations or larger estates (4%) and intermediate sized holdings or ‘blocks’ (11%) of between 10 and 20 hectares produced the remainder. (Figure 1)

Source: Export & Processor Returns

Coffee is grown in 16 provinces of PNG, but production is mainly centred in Eastern Highlands, Western Highlands, Jiwaka, Morobe and Simbu provinces. These provinces account for over 90% of production. East Sepik supplies most of PNG Robusta exports. The Arabica coffees produced in PNG, especially those produced on the larger estates, are considered to be among the finest gourmet coffees in the world.

1.    3.0 Exports

PNG exports almost all (99.9%) coffee it produces in green bean, less than 1% is exported in roast and ground form. The trend in exports therefore resembles that of production. Exports have averaged 960,000 (57,600 tonnes) bags per year worth K510 million in the past 10 years (Figure 2).

Source: CIC Export Records

Major export grades continue to be Y1 grade 58%, followed by Premium Smallholder Coffee (PSC) grade at 12%, X grade 9% and A grade 6%. PSC grade has fetched premium price of 64% per kilogram over Y1 grade.

United States continue to be the main buyer of premium coffee takes in more than 57% and 41% of A and X grades, respectively. Australia imports over 19% of PSC grade while Germany ships most of Y1 grade (55%). New Caledonia picks up most of Robusta coffee (78%) while Australia receives about 43% of Y3 grade. (Table 1).

Source: CIC Export Records

1.    4.0 Exports of Certified Coffees 

Despite the general decline in production, the exports of verified and certified coffees (4C, TK, UTZ and RFA certified), Organic, Fairtrade and Fairtrade Organic coffees grew steadily by 22% on average in the last 5 years. Exports of certified coffees constitutes 5% of the annual exports. Exports of Organic, Fairtrade Organic and Fairtrade coffees in 2016 totalled 3,482 tonnes, an increase of 24% compared to previous year. In 2016, exports of 4C, UTZ, RFA and TK compliant coffees grew significantly by 61%, or more than half the previous period. The growth in exports of certified coffee attributed to the increase in number of licensed or certified coffee farmers, consequently earning increased returns to farmers who are participating in certification programs.

Source: CIC Export Records

1.    5.0 Major Export Markets 

The main markets for PNG coffee are Germany, which usually buys well over 36 % of total exports, followed by United States (25%), Australia (16%) and Japan (5%), Belgium (5%), New Zealand (2%) and Russia (2%). These countries take over 90% of annual exports. 

Source: CIC Export Records

1.    6.0 Exporter Market Share

From a total of 22 exporters in 2016, the top six (6) exporters took over 78% of total exports. Those six were PNG Coffee Exports (PNGCE) 23%, New Guinea Highlands Coffee Exports (NGHCE) 20%, Outspan 10%, Monpi 9%, Kongo 8% and Gabiga 7%. The other 16 exporters were responsible for the remaining 25%. The two national exporters, Gabiga and Kongo, continue to remain in the top six position in the last two years, displacing NGCT&S one of top five exporters, in terms of exporter market share in 2016. All the same, the top three (3) exporters ( PNGCE, NGHCE & Monpi) who have links to major international trade houses, continued to dominate the market taking over 50% of annual exports. 

In terms of exporter market share by grade, PTC continued to export the most A/AA-grades (34%), Monpi shipped the most X/AX-grade (39%) while PNGCE continued to export the most Y1-grade (31%) and Y3-grade (34%) coffee. The most PSC grade (36%) was shipped by NGHCE, whereas Kundu continued to be the only exporter that exported 100% of Robusta coffee in 2015 and over the last five years.

Source: CIC Export Records

As anticipated, coffee prices came under pressure during the first two days of the week as rain continued to fall throughout the coffee growing regions of Brazil. But continued buying, mainly by speculators and the Funds, spurred on by the shortage of conilons in Brazil and reports of extremely low carryover stocks, reversed the downward march and began to push prices back upwards during the latter half of the week. Arabica coffee prices finished the week 5.95 cents/lb higher while robusta gained just $1/ton (0.05 cents/lb). In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea should be 45 to 50 toea/kg higher in the week to come.

A more bullish supply outlook plus macro-economic factors (namely the US federal Reserve’s decision not to increase interest rates and the announcement by the new Brazilian President that he was committed towards an economic recovery for the country),

A strengthening Brazilian Real together with weather concerns for both Brazil and Vietnam as well as the news that conillon prices are now trading at a premium to low quality arabicas in the internal Brazilian market, all combined to push coffee prices a lot higher this week. Arabica coffee prices gained 9.35 cents/lb. Robusta coffee prices although originally dragged upwards by the rise in New York, did not rise by anywhere near the same extent and only made $34/ton (1.5 cents/lb) over the week. In the absence of local market distortions, roadside parchment coffee prices in Papua New Guinea should be 90 to 95 toea/kg higher in the week to come.

It was a fairly lacklustre week until Friday when encouraging export figures from the ICO plus a weaker US dollar combined to push prices higher. Arabica coffee prices gained 4.5 cents/lb over the week but 90% of that was on Friday alone, while robusta gained $48/ton (2.2 cents/lb). This should mean that roadside parchment coffee prices in Papua New Guinea will probably be between 12 and 16 toea/kg higher in the week to come.
The latest data from the ICO showed that world coffee exports amounted to 9.03 million bags in June 2016, compared with 10.17 million in June 2015. Exports in the first nine months of coffee year 2015/16 (Oct/15 to Jun/16) have increased by 0.2% in comparison with the first nine months of the last coffee year. In the twelve months ending June 2016, exports of arabica totalled 71.16 million bags compared to 68.41 million bags last year; whereas robusta exports amounted to 41.69 million bags compared to 45.07 million bags. A new report released by Brazil-based Unicafe has pegged Brazil’s 2016/17 coffee crop at 53.6 million bags, of which 43.1 million bags are arabica and 10.5 million bags robusta. Based on this expected production figure, estimated exports from July-Dec of 17 million bags and estimated consumption from July-Dec of 10.26 million bags, Unicafe expects availability as of January 1st 2017 to total 27.473 million bags. This includes the estimated carryover stocks (not including government stocks) as of June 30th 2016 of 1.133 million bags. The latest survey from Safras & Mercado showed that as of July 26th, 70% of the 2016/17 Brazilian coffee crop has been harvested. Based on their estimate of 54.9 million bags, this would indicate that 38.27 million bags have been harvested. This is 6% higher than last week; higher than the 66% harvested by the same time last year; and close to the five-year average of 71%. According to the latest data from the US National Coffee Association, coffee consumption in America rose 0.01% in June from the same month last year to total 7,227,495,408 cups. In-home consumption fell 0.83% to 4,940,230,545 cups, while at-work consumption and restaurant consumption rose 1.76% (1,409,758,528 cups total) and 2.09% (877,506,335 cups total), respectively. Single-serve gained 3.84% while the French Press, instant and traditional sectors all saw declines. The latest data from the European Coffee Federation shows stocks in European warehouses rose 17,892 metric tons in May from the previous month, to total 724,682 metric tons.
Traders report that activity in the physical market was quiet this week, with interest centred on arabica from Colombia, Guatemala and PNG . Differentials have hardened slightly, but the situation is mixed. Brazilian 3/ 4’s are higher minus 24; but Honduras HG’s are steady at plus 3; as are Kenya FAQ’s at plus 95/98; while Colombian UGQ’s are slightly lower at plus 9. PNG Y1’s are also lower at minus 12. 
In many ways it was a strange week in that all the news was relatively bearish, yet neither market showed any real reaction until Friday. This bodes well for next week, as it is fairly obvious that the market has now adjusted to the emerging tighter supply demand balance reality with prices now trading within a higher range than they did even just a few weeks ago. However with Europe and the USA entering the holiday season and the Olympics taking place in Brazil, trading volumes will be thinner, which might mean increased volatility. Prices should continue their upward journey next week, but any increase will not be large.


©2017© Weekly Market Reporting - Coffee Industry Corporation. LUKAUTIM KOPI NA KOPI BAI LUKAUTIM YU
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