Good day. Welcome to the first edition of DRWakefield’s Weekly Market Report! This will replace our previous Fortnightly Market Report and is a more concise version that will be delivered to your inbox every Tuesday, providing you with the latest and most relevant market insights weekly.
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.
Coffee Market Report 04/07/2023
This report was written by Hannah and covers news from the period Monday 26th June to Friday 30th June.
New York Coffee Market
It was another overall bearish week in the New York coffee market last week, with the market opening at 164.40 c/lb on Monday 26th June and closing at 159 c/lb on Friday 30th June, the lowest it’s hit since the end of January 2023. The weekly high was 166.95 c/lb and hit on Tuesday 27th June. However, this spike was driven by short-covering and not the fundamentals. Weather in Brazil is looking favourable, with an estimate 40% of the harvest already completed this is looking very positive. A frost at this time in the harvest would be devastating for the crop, as many people will remember from the last serious frost in July 2021. A good weather forecast in Brazil keeps the market coming down as it suggests the crop will be large, and an increase in supply means prices come down as demand and potential shortages do so also.
After the high of Tuesday, the bears were in full swing Wednesday through Friday, with the market closing lower every day. As you can see from the graph above, the market has been tracking the lower Bollinger band. Often when the market hits the lower band, it’s a signal that it will change direction and head back up, however we have yet to see this happen.
COT & certified stocks
⇩ COT cut off 27th of June: Non-commercials turned their Net Long to a Net Short, decreasing their position by 14,630 to a Net Short of 3,939
⇧ ICE Arabica Coffee warehouse stocks: 549,252 bags (+2,602 bags compared to last Monday).
⇩ ICE Arabica Lots pending grading: 3,989 bags (-3,260 bags compared to last Monday).
Origin
Many roasters will remember the sky-high Colombian prices that we saw start to shoot up this time last year, and only finally tail off as the end of the year rolled around. These were largely driven by incredibly high, record-breaking differentials coming out of Colombia. However, H1 of 2023 has told a very different tale compared to H2 of 2022 when it comes to Colombia pricing. Differentials began to fall at the start of the year but in the last months have dropped off a cliff and we’re seeing Colombia pricing come almost in line with other origins! This fall in price is partially attributed to a lack of demand for Colombian coffee, last year many roasters had to find alternatives to replace Colombia when the prices became untenable, and perhaps this has impacted overall demand for Colombian coffee. However, what this means is that Colombian pricing is currently very favourable!
Currency & Macro Outlook
Following the BoE’s decision to increase interest rates by 50bps last week, this week Silvana Teneryro, a BoE policymaker, has hinted that they will be putting a stop to the series of rate hikes we have been experiencing. She stated that as the key determinant of inflation, such as wage growth and the price of core goods are set to slow, the BoE may no longer have a need to continue their Monetary Policy tightening. However, in the face of yet further increases in mortgage rates and the interest rates rising just last week to try and battle the stubbornly high inflation the UK is facing, many are sceptical of whether this is indeed the end to interest rate hikes. Despite this uncertainty, the cable has held largely firm with the value of GBP still standing after all this time, flirting around the 1.27 mark, it closed the week at a very respectable 1 GBP to 1.269 USD which isn’t half bad (for 2023 that is)!
Coffee Market Report 26/06/2023
This report was written by Henry and covers news from the period Monday 19th June to Friday 23rd of June.
New York Coffee Market
Last week started off busy as the industry set about squaring their July positions and rolling them into September. The graph above represents the July terminal but next week’s report will feature the September terminal, as that will be the front month, the month that everyone refers to when they talk about ‘the market’. Monday kicked off the week opening at 187.70 c/lb and, amidst reports of certified stocks dwindling and importers holding less spot inventory due to higher interest rates and the market in backwardation, there were plenty of bulls at the dinner party. However, it was all one-way traffic and after a tight trading session on Monday, Tuesday and Wednesday saw the market plummet to close at 172 c/lb on Wednesday, 15.7 c/lb lower than Monday’s open. Fingers crossed those at origin didn’t wait till the last minute to fix this time. The move was largely driven by speculative selling, with funds looking to go short and also exit any long positions they may have held. Disappointing financial data released over the beginning of the week set the tone with European stocks and the Energy complex driving losses.
On Thursday we dropped a further 2 c/lb and closed the week out at 168.05 c/lb, with the September terminal closing it out at 164.85 c/lb. The graph above makes it look less bearish than it was as on Thursday, when we moved over to the September terminal, we lost another 7.75 c/lb. We are now below the new FT Minimum price that comes into play from August. This will be on the minds of many cooperatives in Peru as they seek to navigate the choppy waters ahead.
COT & certified stocks
⇧ ICE Arabica Coffee warehouse stocks: 546,650 bags (+1,323 bags compared to last Monday).
⇩ COT cut off 13th of June: Non-commercials Net Long at 10,691 lots long (5,360 lots decrease from last week)
⇩ ICE Arabica Lots pending grading: 5,875 bags (-5,672 bags compared to last Monday).
Origin
You’re forgiven if you’re bored hearing about Central Bank rates, but they are important to mention now! Brazil’s central bank maintained its benchmark interest rate on Wednesday for a seventh consecutive policy meeting, but took a more dovish tone on its future steps by excluding from its policy statement the possibility of upcoming rate hikes. The rate sits at a six-year high of 13.75% and the fact that the Bank is signalling no new rate rises in the medium term reduces the likelihood of the BRL strengthening. This might prove to be a bullish factor in coffee going forward.
Currency & Macro Outlook
Last week it was the ECB and FED increasing (or not) interest rates. This week it was the Bank of England’s turn. It raised its key interest rate by 50 bps to 5%. MPC Members voted 7/2 for the increased hike. HSBC has revised its forecast and now expects the BoE Bank Rate to peak at 5.75% (previously 5.25%). Against that backdrop, HSBC has also lowered their growth and, to a lesser extent, inflation forecasts. They also note an increasingly concerning fiscal situation, with public debt to GDP set to rise to 104%. It’s good people are talking about public debt; as discussed in previous reports, it seems many economists are burying their heads in the sand about this. The good news is that GBP/USD still sits at a good (in 2023 terms) level of 1.273. This, combined with the drop in the NYC, and lowering differentials at origin (driven by Colombia), should start to make £/mt warehouse a lot more palatable. At last, some good news to share!
Coffee Market Report 19/06/2023
This report was written by Henry and covers news from the period Monday 12th June to Friday 16th of June.
New York Coffee Market
The market opened Monday 12th of June at 190.25 c/lb and this would prove to be the highest point of the week. Monday closed 4.7 cents lower at 185.55 c/lb and the move was driven by liquidation induced by news that the upcoming weather at the weekend was going to be not as cold as initially thought, with very minimal risk for coffee trees. The bearish sentiment extended the next day as crop forecasts from the USDA showed some harvests were going to be larger than expected (especially Honduras). The market hit the week’s low on Wednesday at 181.25 c/lb but tracked upwards that day and the day after. However, the market could not sustain this momentum on Friday, closing the week at 184.90 c/lb. All eyes are now on First Notice Day this week.
COT & certified stocks
⇧ COT cut off 13 Non-commercials Net Long at 16,051 lots long (1,087 lots increase from last week)
⇩ ICE Arabica Coffee warehouse stocks: 545,327 bags (-998 bags compared to last Monday)
﹘ICE Arabica Lots pending grading: 11,547 bags (no change on last week)
Origin
Coffee is scarce in Vietnam, would you believe? There is fierce competition among exporters to secure physical and fulfil their contracts. In May upcountry inventory declined by 34% and port inventory declined by 14%. This supply challenge is maintaining pressure on the London market, which is sky-high. Some exporters are not offering till new crop shipments begin in November/December; they are not expecting much more coffee to come from the hands of farmers who have already taken advantage of the high market.
Currency & Macro Outlook
It was a busy week in the macro world with the FED and ECB announcing (or not) rate rises. The FED held the Fed Funds Rate at 5-5.25% on Wednesday but indicated it was just a pause. Markets are pricing in a 0.25% rise next month so let’s see. As expected, the ECB hiked rates by 0.25% on Thursday and it seems more are in the pipeline. Lagarde said that it was very likely for them to continue to raise rates in July. “Are we done? Have we finished the journey? No. We’re not at our destination. Do we still have ground to cover? Yes…’’ Hawks dominate in Europe as inflation is proving sticky. The Bank of England meets this week and it’s expected that they will also raise rates.
The US Dollar index weakened over the course of the week and both the Pound and Euro benefitted from this. The Pound reached 2023 highs and is soaring, flying, there’s not a star in heaven it can’t reach! The two currency pairs closed out the week at 1.278 and 1.094.
This week’s report was written by Henry Clifford.
Coffee Market Report 12/06/2023
This report was written by Henry and covers news from the period Monday 5th June to Friday 9th of June.
New York Coffee Market
Monday 5th of June opened at 179.95 c/lb and although the market did sink to what would be the low of the week at 179.35 c/lb, it closed the day out higher at 183.10 c/lb. Tuesday and Wednesday were fairly quiet and on Thursday this all changed with a 11.55 c/lb daily trading range with the market closing 8.65 c/lb higher than open, at 194.85 c/lb. This was driven by aggressive short covering by the non-commercials and also supported by the commercials, looking to roll their positions to the September terminal in anticipation of FND (June 22nd). The July-September switch gained 80 points to settle at 4.50 cents, reflecting the firm interest buying of the structure. The market remains inverted up to March 24.
Friday was also busy, but the bullish sentiment of the day prior flipped and we headed into the weekend closing the day out 5.95 c/lb lower than the day’s opening to finish the week out at 190.65 c/lb.
COT & certified stocks
⇧ COT cut off 6th of June: Non-commercials Net Long at 14,964 lots long (6,968 lots increase from last week)
⇩ ICE US Arabica Coffee warehouse stocks: 550,379 bags (-23,129 bags compared to last Monday)
Origin
The USDA revised their Brazil Conilon forecast down by 5% to 21.7m bags. The lower production estimates are because of decreases in productivity and poor weather conditions due to reduced rains during the early stages of the crop cycle. Robusta diffs remain high, which, coupled with the high market, means Robusta is not so cheap at the moment.
Colombian differentials continue to fall and pricing pressure on other Central and South American is building. Colombia priced itself out of many roasters’ portfolios last year and now the situation has reversed, with Colombia offering excellent value against its neighbours.
Currency & Macro Outlook
The standoff between Republicans and Democrats has stolen the headlines over the past 6 weeks and usurped inflation and interest rates as the hot topic in the news. However, now Congress has decided to avert a sovereign default and allow the government to resume borrowing, attention is back on inflation and interest rates. The FED will need to take tougher action than expected to root out inflation, according to a majority of leading academic economists polled by the FT, who predict at least 2 more 25bp interest rate increases this year. The US economy remains “very, very hot,” though not as much as it was 6 to 12 months ago, said former Treasury Secretary Lawrence Summers. Only a couple of months ago it seemed that rate rises were all but behind us. Strap in, as it seems this is not isolated to our friends across the pond. Economists expect the European Central Bank to raise rates this week by 25 bps and perhaps another 25 in July.
Last week the Greenback lost value against both the Euro and the Pound, with the Pound having a particularly strong week, closing it out at 1.257.
FX Data
