Coffee Market Fortnightly Report 17/04/2023

Good day. Welcome to this edition of the DRWakefield Fortnightly Market Report. This fortnight we’re covering the period Monday 3rd April to Friday 14th April.

This report touches upon the Arabica and Robusta coffee futures market, currency pairings and news from origin. See our Market Report Terms page for clarity on any terminology in the coffee market report below.

NYC Market

Monday 3rd of April opened at 171.30 c/lb and, although it did briefly dip to 171.25 c/lb, little did we know that this would pretty much be the low of the fortnight. Nobody expected the market to be runnin’ up that hill as fast as it did! It closed on Thursday 6th at 183.60 c/lb, 12.30 c/lb up on Monday 3rd. This was largely down to speculative short covering ahead of the Easter Weekend. The market was closed for Good Friday and we headed into Easter wondering if the momentum would continue after the break.

On Easter Monday we saw reduced trading hours but in spite of this the daily range was still 5.2 c/lb and it closed a cent lower than how it opened. The following day saw a cool 7.05 c/lb added to the board, with the market closing at 190.50 c/lb, above the psychological barrier of 190 c/lb. Whenever these levels are broken through people turn to the next round number and chit chat started about whether or not we would break through 2 Dollars soon after. Well, as you can see, this was tested on the Thursday (high of 199.70 c/lb) and Friday (199.65 c/lb) but never reached.

Although there was a small pullback on Friday, the market closed at 193.40 c/lb. The key factor driving this increase was the strengthening of the Brazilian Real against the Dollar and this was supported by some fundamental data showing notably lower exports from Brazil and a decline in Colombian output during March, both pointing to short term supply challenges.

COT & certified stocks

The CFTC’s COT report with the cut-off Tuesday 4th April showed how the non-commercials reversed their recent small Net Long position to go Net Short by 343 lots. This is in line with their recent behaviour of not going too long or too short, driven by so much uncertainty around supply and the macro-economic climate.

The CFTC’s COT report with the cut-off Tuesday 11th April showed the speculators taking more of a view and turned their Net Short back into a Net Long, but this time adding more volume to take the total Net Long to 10,907 lots.

ICE certified arabica stocks sit at 710,687 bags, a level where we were last at towards the beginning of last summer. April 2023 numbers represent less than half the figure we were at for the same time 2 years ago.

Robusta

London opened Monday 3rd of April at 2,215 $/mt and closed the Thursday before Good Friday (market closed) at 2,299 $/mt. Tuesday 18th was a mammoth day, increasing by 108 $/mt! Friday 14th closed at 2,411 $/mt, nearly 9% upon how we started the fortnight. The initial increase started a wave of origin selling which cooled off as we climbed higher. 2,310 $/mt was the highest level in 2022 so Robusta really is experiencing a big bull run at the moment.

Origin

As we touched on earlier, the big news coming out of Brazil during the past fortnight concerned the strength of its currency against the US Dollar. It started the reporting period at 5.06 and just over a week later it surged past the 5 level and settled around 4.90 on Friday. This represents the lowest level in the last 10 months and is seen by many as a big bull factor which could prop up the market if it continues strengthening. Will we see the return of our old friend the USD/BRL currency pairs as a very reliable predictor of where the market is headed? Perhaps, but it’s unlikely to be as strong given the strength of other macro factors we have to contend with at the moment.

Fairtrade is not an origin but we are featuring it as such in this report to make sure you haven’t missed out on the latest price changes. A few weeks ago the Fairtrade Foundation released a statement confirming the increase in the Fairtrade Minimum Price (FMP) and the Organic Differential for coffee. It was the first price increase since 2011 and the changes will take effect from any contracts agreed from the 1^st of August 2023. You can read more details here.

Coffee exports from Vietnam for Q1 2023 are estimated to have decreased by 1.6% to 572,000 tonnes, equivalent to 9.5 million 60-kg (130-pound) bags, official data shows. Coffee sales saw an initial boom in line with the market rally but have now tightened as farmers are watching the rally and want to sell at the top. Many have sold enough physical that they are happy to wait and take a position on their remaining supply. It was feared that there could be a possible drought later this year but in the last couple of weeks rain has come in good quantity to the Central Highlands, although some other regions remain dry and arid, patiently waiting for Mother Nature to deliver some respite.

Currency & Macro Outlook

The Macroeconomic climate continues to keep everyone on their toes; inflation (and the prospect of deflation; bonds, and US Debt are all key topics the market is discussing. All of these impact the strength of the Greenback and therefore are all worth monitoring.

Inflation continues to be a thorn in the side of the global economy and as soon as it appears to be getting under control, data is released showing that actually, we’re not out of the woods just yet. At the end of March, data was released that showed that UK CPI inflation rose from 10.1% to 10.4% y-o-y in February, defying market consensus and the BoE’s expectations of a fall back to 9.9%. That said, consumer prices in the US grew at a slower pace in March, so it’s not all bad news. We can discuss numbers but the decision makers around inflation will be the BoE, ECB and the FED, how will they interpret this data and act? The market seems uncertain at the minute. Curveball, some investors are now talking about the risk of medium term deflation…

As the banking crisis was unfolding, bond market volatility exploded: the cost to hedge against an abrupt Fed cutting cycle skyrocketed, and bond market liquidity quickly evaporated. This fuelled uncertainty in the markets and increased the tentative trading we have seen since the start of the issues in the US banking system and its ripple effects across the world.

The US is to add $19TN in debt over the next decade according to the Congressional Budget Office’s (CBO) conservative estimate and debt as a % of GDP will double by 2053 to 195%. These are highly concerning and scary numbers. US debt is the elephant in the macro room and when people start talking about it more, it will be interesting to see how markets adjust/are impacted.

It’s not all bad news though! The UK economy is now estimated officially to be back above pre-pandemic levels (by 0.3%) on a monthly basis.

GBP/USD opened the fortnight at 1.25, dipped to 1.238, regained the losses to surge to 1.252 and then settled at 1.242. The Euro started the fortnight at 1.095 and followed the same path as Sterling, but managed to close the fortnight stronger than how it started at 1.099.

We hope you enjoyed this report. Till next time coffee folks!

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