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11-25-19

Good morning everybody hope it was a good weekend for all.

Last week was quite a market, we were up at one point 10 cents in two days and finished the week up about 6 cents overall in New York.  The London (Robusta) market was also up but only a penny. The advance in New York largely reflected some technical factors as the slackening downtrend caused momentum traders to cover their short positions, but these things rarely happen in a vacuum of fundamental news.  As a wise man once said to me: always ask yourself what is the market trying to tell you. Here’s what we know:

  • USDA came out with a revised Brazil crop estimate that was 1 million bags lower for the current (19-20) crop to 58 million, the reduction all in arabica, and noted quality issues due to erratic rainfall. Crop down 7 million bags from the previous year.
  • Exports from Brazil in October were down 4% versus year ago (unsurprising due to the huge crop last year) but down 30% in the first two weeks of November versus the same period last year
  • GCA stocks reported down 174,000 bags to a still high near-record level of 7.2 million bags. Seasonally, further declines are expected but in the past, the level would get down to 5 million bags or less for the market to truly take off.
  • A major multinational tradehouse reported more or less the same decline year to year in Brazil, although they note that most of that was offset by increases in Vietnam and elsewhere; combined with rising consumption, the coming coffee year will be in approximate balance after a surplus year of some 3-4 million bags this past year
  • New York exchange certified stocks declined (which we can say means less competition to origin-based arabica producers) while London (Robusta) stocks grew.
  • Last week’s market performance was all the more impressive because Brazilian Reias was steady at a very weak level (4.19-4.20 to the dollar). The Brazilians (and others) might have sold like crazy into this rally, stopping it in its tracks – but they didn’t. Differentials generally remained more or less firm at historically expensive levels.

We’ve all been concerned for some time that this year’s market has been particularly challenging to the higher quality arabica producers. Last week’s market activity and above news is wholly reflective of that. With London up much less than New York, the arbitrage between the two markets expanded to nearly the widest level in close to two years at 51 cents (think of that as being the premium for generic arabica vs generic robusta). With the gap in the coming supply year filled by Vietnam, it means the market has to find a way to tempt the most price conscious of users to switch from arabica to robusta. At a 51c arbitrage, even the highest quality robusta will generally be at a discount to arabica, which was not always the case in the recent past. Meanwhile it has been gratifying to see producers in Colombia, Central America, and East Africa generally benefit from the higher prices.

Armenia’s most recent arrivals came from Kirinyaga in Kenya (both AA Top and AB Top) and we were pretty thrilled with the quality when they got here.  Check them out! Also, those FTO Peru’s were really dynamite, bright and fresh, just what the doctor ordered for this time of year.

It’s a short week so do check your inventory levels and we urge you to get any orders in early if there’s any chance you need the coffee for the weekend. Warehouses are closed Thursday and Friday and Wednesday will be a zoo both at the warehouses and on the road.

A happy Thanksgiving to all and we’re thankful for your trust in us.

Lets us know how we can assist.

The Armenia Team