Sep 1

Coffee Weekly Report - 2023 09 01

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  • Coffee prices reacted to a slightly lower Dollar Index, while evaluation of recent rains in Brazilian coffee regions is ongoing, potentially enhancing existing flowerings and initiating new growth in recently harvested areas.

  • The volume of deliveries reflects roasters' demand, set against improved market logistics. Notably, August witnessed a 40% decrease in delivery notifications, attributed to fewer Brazilian shipments but positive differential variations.

  • Honduras experienced reduced FOB differentials, combined with a year-on-year rise in deliveries, indicating reduced demand landscape.

  • The 23/24 harvest in Central America anticipates a 1.7% production increase, benefiting from the current weather outlook for September. In addition, historical data suggests that the seasonal trend might lead to downward pressure on differentials during the harvest period.

Differentials’ impact on arabica deliveries

This week, prices responded to a slightly lower Dollar Index (-0.45%), while agents assess the extent and potential of the recent rains in Brazilian coffee areas, which will support the flowerings that have already taken place, and also trigger new flowerings in areas where the harvest has just been completed.

On the demand side, the volume of deliveries reflects roasters' appetite in contrast to an improvement in the logistical framework in the coffee market. By the end of August, the current delivery notification period has experienced a 40% decrease.

However, it's important to note that this decline was driven by fewer deliveries from Brazil, which showed a positive variation in differentials during this period. On the other hand, Honduras experienced a decrease in FOB differentials along with a year-on-year increase in deliveries.

For August 2021, container freight rates were at historical highs, while in 2022, they had reduced by 46%. Therefore, compared to the average, the higher number of deliveries from Honduras within normal levels of logistical cost indicates a lower demand for this variety.

Image 1: Arabica Delivery Notices – August 

Source: ICE

Image 2: Arabica Delivery Notices vs. Honduras HG Differential – August 

Source: ICE, Refinitiv

Seasonality suggests pressure on washed Arabica differentials. In Colombia, the peak of seasonality for differentials occurs in June, during the mitaca. Between June and September, differentials are expected to recover slightly, but the seasonal trend until the end of the year is downward, reflecting the main harvest period.

Regarding Honduras, September also represents a recovery, staying in line with what is seasonally observed in May, but with the upcoming harvest, differentials may struggle to bounce back.

As for the 23/24 harvest in Central America, rains in September should aid the final stage of development, bringing optimism in terms of production for the region. We estimate a slight 1.7% increase in Central America's production for the 23/24 cycle, reaching 16.3 million bags.

Image 3: Container Freight Index (USD)

Source: Refinitiv

Image 4: Differential Seasonality – Honduras

Source: Refinitiv

In Summary

Coffee prices responded to a slightly lower Dollar Index this week, while Brazilian rainfall's impact on recent and potential flowerings is being evaluated, benefiting those that have occurred and triggering new growth in harvested areas.

Roasters' demand contrasts with improved logistics, reflected in a 40% August drop in delivery notices, driven by fewer Brazilian shipments but slightly higher differentials. Honduras displayed reduced FOB differentials alongside increased YoY deliveries.

Seasonally, the upcoming 23/24 harvest in the region might negatively affect differentials, as seen from the historical average of the past 10 years.

Weekly Report — Coffee

Written by Natália Gandolphi
Reviewed by Lívea Coda


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