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Market Update 21st April '23

Arabica futures fell sharply overnight in New York alongside a general drop in commodity markets. Trading volumes fell as is usual after the first notice day and technical indicators suggesting overbought levels also added further pressure to prices.


Robusta prices also fell overnight in London but did not track the sharp fall in arabica prices. The RMN23 July contract traded within a fairly narrow band of ~ USD $70/t across the week as prices continue to be supported by forecast deficits for this year's harvest.


Arabica


Arabica coffee futures ended lower last Friday in New York as funds took profit on long positions. The most active contract for July delivery closed 290 points lower at USC 191.50/lb. Prices recovered sharply at the start of the week however on the back of short covering and speculative buying with the final notice day for the KCK23 May contract approaching. This momentum carried on into mid-week as prcies hit a 6-1/4 month high, with the July contract peaking at around USC 205/lb. Momentum couldn't be maintained however as a new key support level was breached and technical indicators reached overbought levels. These factors coupled with a general fall in commodity prices globally, saw a sharp correction in arabica prices at the end of week with the KCN23 July contract closing at USC 194.25/lb.


Robusta


Robusta prices fluctuated within a narrow band of USD 70/t, with trading relatively flat across the course of the week. Prices fell initally last Friday in London as the previous week's momentum couldn't be sustained. Most of the action this week has come on the part of the non-commercials with speculators being forced to fill short positions and strong backwardation encouraging long positions both providing support for prices. Origin sellers are remaining out of the market for the most part as the assumedly wait for higher highs on the back of forecasted deficits for these year's havest. The most active contract for July (RMN23) closed at USD 2,362/t overnight London.



Market Events

General commodity prices fell at the end of the week as the US Federal Reserve's Beige Book report was published this week, indicating that the US economy has stalled and further economic reports were weaker than expected.


Both arabic and Robusta are finding support on concerns of global supply with ICE arabica inventories falling to 4-1/2 month lows. Reports out of Colombia also indicated a 19% year-on-year fall in exports. Global coffee exports have also fallen by 8.7% year-on-year to 48.66 million bags.


The International Coffee Organization (ICO) projects a wider deficit of -7.3 million bags in the global 2022/23 coffee market, with global coffee production and consumption expected to increase by 1.7% year-on-year. The USDA has also revised down its global 2022/23 coffee production estimate to 172.8 million bags.. The Brazil 2022/23 coffee production forecast has also been reduced to 62.6 million bags due to the effects of last year's drought.


Concerns about the impact of an El Nino weather event are also beginnning to take shape as this could bring heavy rains to Brazil and drought to India, negatively affecting coffee production.


Robusta prices are still being supported by the forecasted record deficit of 5.6 million bags in the global 2023/24 robusta coffee market, as well as the expected fall in Indonesia's 2023 coffee production by 20% year-on-year to 9.6 million bags. Origin sellers are also staying out of the market, presumedly awaiting price increases which is providing further support to the market.

 

The information contained in this blog is intended to be general in nature and should not be taken as constituting professional financial advice. It does not take into account your objectives, financial situation or needs. We recommend seeking independent financial advice before acting on any of the information contained within.

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