LONDON – After five consecutive months of rising prices, the coffee market reversed lower in May. From a high of 179 cents/lb in April, the daily price of the ICO composite indicator fell to a low of 153 cents by the end of May.
Conab have lowered their estimate of the 2014/15 Brazilian crop by around 4 million bags to 44.57 million due to the effects of the drought, which would represent a second successive year of lower production.
However, reports from other market analysts, including the USDA, suggest that the damage might not be as serious, with estimates of around 50 million bags, further adding to the bearish sentiment this month.
They argue that the recent rains in Brazil have to some extent compensated for the earlier drought, contradicting the prevailing view that the damage inflicted in January and February cannot be undone, no matter the level of precipitation at present.
The daily price of the ICO composite indicator slipped from a high of 176.30 US cents/lb on 5 May to a low of 153.33, while the monthly average settled 3.9% lower on 163.94 cents.
The drought in Brazil and resulting uncertainty over the crop have been driving prices higher since the beginning of the year, but a well-stocked supply chain has not yet felt the impact, with exports from Brazil exceeding their levels of a year ago.
In terms of the group indicators, all four monthly averages finished lower.
The most significant decreases were registered in the three Arabica groups, with Colombian Milds, Other Milds and Brazilian Naturals down 4.1%, 4.2% and 4.5% respectively, while Robustas fell by 2.4%. The price of Other Milds remained above that of Colombian Milds for the fourth consecutive month, although the differential narrowed by 11.2% to 2.54 cents.
The coffee market remains highly volatile, with the rolling 30-day volatility of the ICO composite indicator price well above 10% since the beginning of February, at times exceeding 15%.
The prevailing uncertainty surrounding the damage to the Brazilian crop presently being harvested will last for at least another month, and with it the higher than usual volatility, with all the negative implications for producers and consumers alike.
Until more information is available, the ICO maintains its estimate of 44.57 million bags for the 2014/15 crop year as indicated by Conab.
Download the full Market Report in PDF format at this link.
