The latest data from the Green Coffee Association (GCA), shows that coffee stocks in warehouses in all ports of America totalled 6,223,285 bags at the end of July, this is 173,201 bags, or 2.9% higher than last month and 148,939 bags (2.5%) higher than in July 2021. The increase, although relatively large, was not entirely unexpected as historically stocks tend to increase during July, usually by around 140,000 to 150,000 bags. The total, however, is the highest stock level seen since September 2020. Furthermore, although the increase seen this week in stocks certified against the New York exchange was relatively small, up 38,000 bags, it is the fact that there was an increase which probably surprised the market, although should not have done as the number of bags pending certification jumped significantly last Friday. Rain has been reported in several arabica coffee growing regions of Brazil over the last few days and may have been sufficient to induce an early flowering. In itself this would not be a problem but given that the chances of a La Nina occurring over the next few months appear to be increasing (the Australian Bureau of Meteorology (BOM) has increased its estimate of likelihood of a La Nina to over 70% this week), there is a strong possibility that late August and September will be dry, forcing the trees to abort any buds that have been formed. The Strauss Group published its financial statements for the first half of 2022 this week, reporting an increase of 8% in overall revenue. This growth is largely due to an increase in sales by the coffee company but was partially offset by a drop in sales by the confectionery Division.
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. Once again it appears that physical price differentials have remained relatively stable, which is of surprise. Brazilian 3/4’s appear to be steady at minus 15; Honduras HG’s are also unmoved at plus 44; Kenya AB FAQ’s may well be slightly lower with quotes between plus 75 and plus 100; while Colombian UGQ’s continue at plus 75/76. Without any update on PNG Y1’s, I would guess (and it is just a guess) that they might also be unmoved at around plus 7. Therefore, had an exporter fixed on Friday in New York for Dec/Jan delivery he may have been able to secure a price between 216.45 cents/lb and 221.70 cents/lb.
This week’s decline although not entirely unexpected was certainly larger than many had thought. The arabica coffee market however remains very volatile, with this week’s falls almost wiping out 60% of the gains made the week before. It is therefore very clear that the outlook remains somewhat opaque, with the prospect that there are equal probabilities that next year will either see a bumper crop in Brazil or a much lower than expected one. It is therefore highly unlikely that the outlook will become any clearer next week, so it can be anticipated that the volatility seen of late will continue. On balance, given the small increase seen on Friday, there is a good chance that prices might rise a bit over the week to come.
Source:
Mick Wheeler, UK
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