Weekly Market Report 8 to 12 July 2013

Coffee Prices, Futures and Currency close levels:

Futures Markets:

Arabica:  A combination of news of consistent good weather for this year’s Brazil crop and speculative selling led to the dip at the end of last week.  This low breaks the pattern of the last four weeks, and without the support of bullish fundamentals, the market looks set to test the current resistance of 117.

Robusta: This week’s sharp ascent following the stability of the week before indicates a bullish sentiment in London.  The climb can be attributed to fund short covering with origin and macro fund selling on the other side.  Certified stocks dropped by 3.2% to 11,575.

Currency: The US dollar made a u-turn from its upward trend on Thursday as speculation continues over the FED’s monetary policy.  The US labour department confirmed that the number of people claiming benefits jumped from 16k to 360k in the first week of July.  FX markets remained choppy.

Physical Markets:

Brazil: the world’s largest coffee producer continues to grab the headlines this week with news of coffee farmers burning their stock in protest to the persistent low prices.  An unexpectedly high yield for the ‘off’ year of the cycle combined with the fruition of the past years’ investment in increased planting have led to oversupply.  This, in an economic climate where production costs outweigh coffee prices leaves the farmers somewhere between a rock and a hard place.  The government has approved a subsidy but emergency measures are being called for.

El Salvador: Coffee production for the 2013/14 crop is projected to fall 36%to 843,500 bags from 1.32 million in 2012/13 due to the coffee leaf rust disease, according to the country’s National Coffee council.  The disease causes leaves to shrivel and stunts the development of the beans.

Vietnam: Robustas are still being traded at their highest premiums since 2011 after price declines led farmers to sit on stock.

Burundi: Coffee-growth forecasts were cut to 4.8% from 6.6% due to revenue shortfalls and slow economic activity in the first quarter of the year.  The IMF forecasts 4.5% growth for the country as a whole this year.

China: The total volume growth for the coffee sector in 2012 was 10%.  The figure is slightly lower than 2011, perhaps attributable to economic decline during this period.

Indonesia: Around 85 to 90% of the country’s coffee exports are to the US, according to the Directorate General of Foreign Trade. Despite over 1.3 million hectares of coffee plantations in the country, productivity is still comparatively low at 1MT/ha. compared to the country’s imposing neighbour, Vietnam, with a production of 4MT/ha.