The coffee market ended up contaminated by the financial turmoil caused by the expectation surrounding the Fed’s decision and has been quite volatile in recent days. Coffee remains vulnerable to the financial market, but seeking to sustain the level above 180 cents, while waiting for a greater advance of Brazil’s 2023 crop. The fall in the dollar serves as a counterpoint to bearish moves. It is also worth mentioning that many arabica growers in Brazil should only start harvesting in the second half of May, which helps to hold back the negative momentum for the price curve.
Robusta continues to regain value against arabica, with the arbitrage between NY/London for the July/23 position falling to something around +74 cents. It was already above 150 cents at the beginning of 2022. The expectation of improvement in the arabica supply, with the confirmation of a larger crop in Brazil, associated with short supply in Vietnam, explains this relative behavior between these different coffees.
World coffee shipments totaled 12.02 mln bags in March 2023, according to the ICO. This represents a 9% decline from the same month last year when 13.25 mln bags were shipped. As a result, accumulated shipments between Oct/22 and Mar/23 total 62.30 mln bags, which indicates a 6.4% decline compared to the first 6 months of the 21/22 season, when the volume amounted to 66.53 mln bags. The numbers reinforce the idea of tightness in the current season.
Weaker differentials for arabica worldwide
World differentials are weaker, except for robusta. The recent positive volatility on ICE US associated with the expectation of the arrival of the full crop in Brazil ended up attracting more sellers to the market, justifying weaker export bases. Emphasis on the aggressiveness of Central American countries, which still carry a good volume of coffee and seek protection from the effects of the arrival of a large Brazilian crop. In Colombia, the decline in production in recent months and the shorter attitude of sellers, in view of the advance of the off-season, have offered support to domestic prices. Thus, the differentials of Colombian milds go up again, after the recent negative realignment. Excelsior Epoca coffee is quoted at 230.75 cents per pound FOB Buenaventura.
Attention should also be paid to the decline in the sales base of Brazilian naturals, with differentials seeking a better realignment because of the arrival of Brazil’s 2023 crop. MTGB good cup 3/4 is indicated at -11 cents FOB Santos for shipment in May and June this year. A much weaker differential compared to the end of March, when it was trading at +2 cents against ICE US. However, it is still appreciated. The indication of the description for shipments from the month of July (new crop) is -18 cents against ICE US. And the five-year average for the differential of this coffee at the entrance of the Brazilian crop ranges from -20 to -21 cents.
Robusta coffee gains value against arabica again, with indications of average prices from the ICO advancing relatively against the NY exchange. This reinforces the indication of a tight supply of robusta due to restraint in Vietnam. Brazilian robusta coffee remains uncompetitive abroad, despite the fall in the differential and the arrival of the new crop. While Vietnamese robusta type 2 is indicated at around USD 2,284 a ton in the port of Ho Chi Minh Ci, Brazilian conillon 13 up is indicated in the FOB port of Vitória at USD 2,468 a ton, that is, USD 184 a ton more expensive than the Asian competitor.