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 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.

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),

Not a great week for the arabica market which has been pressurised by falling exchange rates in many origins, most notably Brazil but also by a higher than anticipated forecast of the upcoming crop in Brazil by IBGE. Arabica coffee prices lost 6.8 cents/lb over the week. Robusta prices, however, did not follow arabica down and have been supported by concerns over the damage caused to the Conillon crop by the extended dry period in these regions as well as concerns over the size of any carryover stocks in Vietnam. As a result robusta prices gained $24/ton (1.1 cents/lb) over the week. This means that road side parchment prices in Papua New Guinea will probably be around 40 to 45 toea/kg lower in the week to come.
There is no doubt that currency values played a large part in this week’s prices movements The Brazilian Real led losses in Latin American currencies after reports that President Rousseff vowed she would never resign from office. The Colombian Peso also fell significantly which pushed coffee prices even lower. The latest survey from the Brazilian Institute of Geography and Statistics (IBGE) estimates that the 2016/17 coffee crop will total 50.2 million bags, up 0.9% from the 49.7 million bag estimate last month. Arabica production is estimated to rise 0.7%, to total 39.2 million bags, while robusta production is estimated to increase by 1.8% to reach 11 million bags. However this does seem rather optimistic as the state of Rondônia, the second largest producer of robusta coffee in Brazil, has now started harvesting the 2016/17 crop and early reports suggest that the low volume of rains during the crop cycle have affected productivity, with producers estimating that it will take 10 to 15% more cherries to fill up a coffee bag. Rains have picked up for Colombia’s coffee growing regions this week, with widespread showers forecast for the next two weeks. However the weather conditions brought on by El Niño phenomenon have certainly had an adverse impact on all Colombian coffee growing regions. A recent study found that the national average of floating fruits due to dry weather currently stands at 19.4% (the normal percentage is under 10%). The amount of green fruits with filling or formation problems is at an average of 33.3% (the normal average is no higher than 10%). And lastly that 16.5% of the coffee trees in Colombia are showing symptoms of withering (this percentage is said to be critical when it is greater than or equal to 8%).
Traders report that activity in the physical market continued to be sluggish this week, with very little interest in any coffee except in some Centrals and any coffee available for immediate delivery. With a lower futures market, price differentials are hardening a bit. Brazilian 3/ 4’s are up a cent at minus 19; Honduras HG’s are higher at plus 2/4; Kenya FAQ’s remain virtually unchanged at plus 85/97; Colombian UGQ’s are slightly higher at plus 14/15; while PNG Y1’s continue to be quoted at minus 1. 
Speculators appear to have reduced their exposure to coffee and in part this may have been behind the larger than anticipated fall in arabica coffee prices this week, but the continuing stream of increased estimates of the upcoming crop in Brazil are not particularly helpful. Unusually the weather in Brazil looks as though it will be hot and dry this week when it should be colder and wet, but at this stage in the season it can only really help the crop, which is not good. Offsetting this to a limited extent are the concerns about dry weather in Vietnam, but the outlook remains precarious and further price erosion looks likely.