Welcome to this week’s Coffee Origins Digest covering Monday 21 – Friday 25 February, where we summarise some of the key fundamental green coffee topics of the moment.

Summary

  • Russia-Ukraine conflict risks additional disruption of container market
  • Brazil coffee analysts expect a good harvest for the larger 2022 crop

Certified Stocks

At the close of the week the number of certified washed Arabica coffee stocks held against the ICE Exchange decreased from last weeks close from 1,028,006 to 980, 562 bags. The overwhelming majority (94.14%) of these stocks are held in Europe. Most of certified stocks originate from Honduras, at 52.11%, with washed Brazil coffees making up a great bulk of the remainder at 368,317 bags, or 37.57% of the total.

Brazil

According to market insights at StoneX,  Brazil coffee production might be approximately 58.90 million bags in the next coffee year, which runs from July 2022 to June 2023. Brazil is the largest natural arabica coffee producer and is expected to produce 38.30 million bags, with an estimated 20.60 million bags of Conilon robusta coffee.

Meanwhile, rain has continued to fall across the Brazilian coffee region during the month of February, although the amount of the rain is easing. Following good rains in December and January, ground water retention levels appear to be adequate, and with good rains in the first half of February, there are no significant concerns about coffee development for the upcoming larger 2022 Brazil coffee crop.

In recent days, the Brazilian Real has strengthened against the US Dollar, rising by 3.38 percent in the last two weeks. A stronger Brazil Real historically discourages exports, which could see a continuation of higher prices, within the coffee futures markets, as supplies are restricted.

Vietnam

According to reports from Vietnam, the financial demands of the Tet New Year holidays are subsiding, and farmers are indicating some internal market price resistance in anticipation of what they believe will be higher prices in the future. Meanwhile, reports of rising Covid-19 infection rates in the country are adding to the uncertainty about the governing authority’s potential regulatory response in the future.

Logistics

logistics delays in the coffee markets continue to influence prices, where increased freight rates, combined with the need for roasters to try to obtain spot coffee to supplement pandemic related delays to shipments, continue to see higher prices. This is in addition to the already dramatic increases in coffee prices against the reference prices in the futures market following the frost in Brazil in 2021.

Geopolitics

The container shipping industry may appear to be less affected by the Russia-Ukraine situation than tanker and dry bulk transport. However, Lars Jensen, CEO of consultant Vespucci Maritime, sees a huge risk ahead, one that might exacerbate congestion and keep freight rates at historically high levels for an extended period of time.

Jensen described how Maersk, then the world’s largest shipping line, was attacked by a massive hack in 2017 and was “totally off the grid for around a week, and it took them a few weeks to get back up and running” during FreightWaves’ global supply chain event last week. Maersk was “purely collateral damage” in a cyberattack on Ukraine claimed on Russia by Western intelligence.

Fast forward to the conflict as it is now. If we see sanctions, Russia may likely respond with cyberattacks. There is a very real risk that critical infrastructure might be targeted, and of course shipping lines, ports and terminals are critical infrastructure.

Are you looking for pricing analysis for the week? Read our Coffee Markets Summary here.

Published February 27, 2022
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