Newest Coffee Update
November 03, 2011
Here is how the market stacked up as of Friday, October 28:
Prices are gradually improving, though this comes as a surprise with potential issues in Central America and a decline in certified stocks to their lowest levels since the year 2000. We will continue to keep you updated as we receive more information. You may read the full report below.
"It was another week of volatility with about a twenty cent trading range on the ICE. Monday saw prices rise about six cents per pound on the stronger Euro and manufacturing reports that showed China was doing better than expected. Speculative buying returned once more. Low consumer confidence and concerns that the European summit would not be successful in solving the financial crisis there brought system selling to the coffee arena on Tuesday and prices fell a whopping fourteen cents per pound. Prices started to recover on Wednesday but finished the day down another three cents per pound as the Euro-zone bearish sentiment continued. European leaders did reach an agreement to address the sovereign debt crisis there, bringing positive sentiment to all markets, with coffee prices rising slightly on Thursday. Prices then moved up on Friday in a small amount, largely on short-covering. For the week, ICE prices were down about nine cents per pound. London prices fell slightly, dropping about $7 - $11 per ton for the week.
It was a confusing week, with prices falling even in light of potential issues in Central America and continuing declines in certified stocks. In addition, Brazil farmers are holding onto their current crop coffees, increasing the pressure on supply. The heavy rains from Hurricane Rina did not appear to hit major coffee growing areas, but the infrastructure sustained considerable damage. The rains from the Hurricane are on top of heavy rains in the recent past, and only made the situation worse. El Salvador reported that it is cutting it forecast for the 2011-12 crop by 6%, with output now estimated at 1.33 million bags. The country was already forecasting a decline in production from last year, and the rains are now making the situation worse. Output last year was 1.92 million bags, so the decline in production is now expected to be 30%. Many of the countries, especially Honduras, are working diligently to repair roads and bridges in advance of the harvest which will begin in a few weeks. Without these repairs, it will be difficult to get the crops to the mills and export facilities, probably meaning some losses.
Certified stocks have now fallen to their lowest levels since 2000. Interestingly, and very much a surprise, around 90,000 bags were put up for certification late this past week. The bags pending grading have been very low for many weeks, and this large quantity of coffee being placed for grading was considered bearish.
Sara Lee Corporation announced it would sell the majority of its North American foodservice business to the J. M. Smucker Company for $350 million. The sale would include the liquid coffee business and Sara Lee’s Senseo line of coffees would be discontinued in North America. Royalty and development agreements will also be part of the arrangement. Smucker purchased the retail giant coffee brand Folgers from Proctor & Gamble a few years ago and evidently now want to target the foodservice business.
The bullish sentiment of last week disappeared this past week, even in light of potential improvements in the Euro zone, better manufacturing reports from China, and potential crop issues in Central America. The technicians are saying the longer-term bearish trend remains intact, even with the somewhat supportive issues outlined above. Technical targets have been set at lower levels, but no one is forecasting prices will come close to the $2.00 range. All of this would be welcome news to many, and it may happen, but the technical geniuses have been wrong before. Let’s hope they are right, as it would bring a welcome respite from the high prices we have experienced since the summer of 2010. Even with these forecasts, a move upward is not out of the question due to fundamental support, improving economic trends, and supply issues. The future looks much like it has in the recent past – volatile to say the least."
- Coffee Perspective, week ended October 28, 2011