Coffee Memo | Rob Talks About the Market Moving Ep. 13

Rob talks about the current state of the coffee market, highlighting significant price fluctuations and the impact of supply chain dynamics.

Takeaways

• February is the busiest month for coffee buyers.
• Current market prices are experiencing a steep decline.
• The gap between current and future coffee prices is narrowing.
• Brazil's coffee crop forecast looks promising this year.
• Coffee stocks are slowly increasing, but still below optimal levels.
• Brazil's coffee consumption fell by 2.5% last year.
• No significant news from the White House meeting is a positive sign.
• Market dynamics can change rapidly, impacting prices.

MIKE FERGUSON: This is The Covoya Coffee Podcasting Network. Coffee people talking to coffee people about coffee and things coffee adjacent. This episode of Coffee Memo is brought to you by Covoya Specialty Coffee, where coffee is always a collaborative voyage.

MIKE: Welcome to Coffee Memo with Rob Steven, a podcast where we talk about coffee industry news and current affairs. This is Episode 13 of Coffee Memo and Rob is in the studio to talk about the market on the move. So Rob, today we're recording in a studio in transition.

ROB STEPHEN: Very much in transition.

MIKE: Yeah, so redoing the studio walls and some of the sound panels to get it ready for video. We're also experiencing a market in transition. We've seen prices in the near term going down, but also we've seen some flattening in the future. Prices, I mean, we're still in that, you have a fancy name for the market that we're in. I can't remember it right now.

ROB: Inverted.

MIKE: Yeah, inverted. And there's another word. It’s like a dime word.

ROB: Contango.

MIKE: Yeah, there you go. That's the one.

ROB: That will be an episode for the new buyers when we finally get back to what should be normal state.

MIKE: So I thought it would be a good time just from point of view of roasters, how should roasters be paying attention to what extent should they be paying attention, is there anything they need to do, things to think about, etc.

ROB: Yeah, no, let's get into it. This is very much a time where if you are a coffee buyer, you should be paying attention, right? So it's Wednesday, February 4th, just to put some context because we have a few days of editing. But we are in the middle of a fairly steep decline in market prices. And we're also, as you pointed out, in the middle of a rapidly narrowing switch, meaning the gap between the current month, which is March 26 futures and the next month after that, which is May 26 futures, last week it was over 20 cents. And today it closed at 13 cents and a half, cap. And the momentum was down all day. And so that would tell me that it'll probably continue in that direction. I don't quote me on that, but it will probably continue in that direction. And so price is going down, the switch is going down, all good news.

It's also very well timed because what's happening right now is the Central American harvest is really in its peak of being offered and bought, right? So everyone who buys forward is in the middle of buying Central American coffees, new crop Brazils that won't ship until August, but those are also being offered forward. And so it's a time where everyone's buying coffee. This is, believe it or not, everyone would think that as a trader and as an importer that December or even November would be our busiest month. It's not.

It's February. February is absolutely our busiest month. And that's because everyone who wants to buy all their sort of coffees that they're going to use all year, this is the busiest month. So for this month to be in a nice price decline is great. And it couldn't happen to a nicer set of customers. So what we need to do now is put some context around that. And again, we don't have a crystal ball.

We could wake up tomorrow and everything could be back up where it was. But we do want to do the sort of normal thing that we do with coffee news, which is look at it in its component parts and see if we can understand why things are happening. So anytime you have massive swings in coffee, the traditional thing to do is look at Brazil. Now, this last year was a study in frustration because we had many other things that had nothing to do with Brazil.

MIKE: We looked at Brazil, but it didn't matter.

ROB: Yeah, well, it's the tariffs in Brazil really married, but in general, we had all sorts of other stuff and we talked about that sort of ad nauseam. But in this case, the conventional wisdom is right. You look at Brazil, they are finally projecting a very large crop, one that would put us back in surplus, at least for the short term. And as we move into what will be, you know, we're in Brazilian summer right now, everything looks good.

Rainfall is good. Crop patterns are good, know, like crop forecasts are medium to high. There's no bad news, right? Now, Brazilian winter hasn't happened yet, which is our summer up here. But right now, all systems are go. So everyone's pretty bullish about that, about the crop forecast, which then has a flattening effect on prices, right? So remember, when we have high prices and we have an inverted market,

That's the market saying, we don't have enough coffee now. We're also worried about the future, but we're especially worried about coffee now, right? So we're less and less worried about the future, which is why the forward switches are narrowing.

MIKE: Yeah, just like three cents.

ROB: Three cents, four cents, where they were 7, 8, 9, 10 cents. And so that's really good news because remember, as someone who, you're buying spot in the US, you're paying for those switches in your price. So the more they narrow, the less you're paying. Right? They’re the cost for an importer to hold coffee. So the smaller those costs get smaller yours cost get right? It's publicly available information. So it's it's gives very good market transparency kind of thing. So you've got a really good Brazil forecast as we said in our forecast episode. It's just an opinion right but as we get closer to forecasting as we get closer to the crop the forecast become more like weather reports, know, so we get much closer to where we need to be.

The next thing that we need to talk about is stocks. So stocks are slowly on the climb back up, very slowly. Coffee is still being taken out on a regular basis, but when we look at pending grading, which is coffee that's been submitted but hasn't been approved by the exchange yet, those numbers are starting to look impressive. Numbers are, like people are putting coffee up, Central American coffee starting to become available. The nearby switch was still attractive. A lot of people sent coffee in, it looks like. So we're still not near the one and a half million bags we need to get to to sort of make everything hunky-dory.

MIKE: Where are we?

ROB: We’re about at half a million.

MIKE: Well, yeah, that's a lot compared to where we were.

ROB: Right. And so, you know, we added about net about 36,000 bags last week.

MIKE: In one week.

ROB: Yeah, it's quite a lot.

MIKE: Right. Where do you see if, let's say, do you have a sense of if all the coffee that's pending goes in?

ROB: I mean, I think that the interesting thing about stocks is there's what you know and what you don't know. Nobody knows what is in people's hearts until they put it out there. But I would imagine that if Central American coffee from certain countries hit tender roll parity, everyone got the same idea at once. And we won't know that their coffee was tendered until it's tendered. it could all be on boats heading there. Could not be.

It's very possible that we could wake up one day and all of sudden there's just this big pile of coffee sitting in the exchange. And again, it took a long time to deplete the pipeline. It'll take a long time to fill it back up.

MIKE: Yeah, but we’re going in the right direction.

ROB: Going in the right direction is exactly the way to look at it. Another thing that is bearish on prices is that Brazil coffee consumption actually fell by 2.5 % last year.

MIKE: Internal consumption.

ROB: And that is something that was just released as a study, but that gets factored into market prices. So Brazil drinking less coffee means less demand, less demand, lower prices. Small thing, but these all compound.

MIKE: But it's also interesting.

ROB: And then, you know, we don't normally talk a lot about Robusta in our office and in this podcast, but there's recovery on the Robusta harvest as well. And the overall supply and demand global picture adds those two together.

MIKE: Yeah, we don't talk a lot about it, but the market talks a lot about it.

ROB: The market talks a lot about it. The market looks at those numbers as well, right? So good weather in Vietnam, stronger than expected exports. And then I think the last thing that was really helpful, and again, today's February 4th, there was just the White House meeting with Petro from Colombia and the president, and nothing happened.

MIKE: Which is good news.

ROB: Which is amazing news. The fact that there's no news is incredible news, right? The two had a conversation and then that was it. And no tariffs were put in place, no fines, no wars, no nothing, right? So imagine the chaos we'd be in if there was hostilities with Columbia in the US, right? So that also just a huge sort of bomb of relief for the market.

So I think if you're sitting here looking at the market, there's always plus and minuses. You could always look at this and say there's things that are still bullish. are things that could drive the price up and we can always have a weather event. We could always have this or that. So you've always got a chance of it going up one way or the other. But I think in general, everyone's sort of feeling downward pressure on prices. This brings out the best and the worst in the roasting community.

Anytime there's a falling market, everyone becomes a card counter. And they say, well, if it went down 10 cents today and it went down 5 cents the day before, so it'll go down 15 cents over the next three days. Killing me, Smalls. So I think that I'm going to encourage everybody to take the win when the market's at a level where they know they can do business. This has been my advice ever since I started trading.

MIKE: Yeah.

ROB: Take a good hard look at it, right? Because you could just as easily wake up tomorrow when we're 10 cents higher. So just don't try and time the market. It'll go down until it wants to stop going down, and then it will go up. So if it's in a place where you're like, man, this works for me.

MIKE: Right. And hopefully you're a roaster who knows what works for you. There's my number.

ROB: There's your number. Yeah. That C price plus the differentials I'm being quoted puts me in a place where I can have a profitable business. That's the way you should be looking at it. Yeah. So I mean, think that in this case, you know, it's been busy here. People have been fixing prices and, you know, taking a look at new offers from Central and South America and it's been brisk, you know.

MIKE: Yeah, it's nice to have customers saying “what else” in a conversation with a trader.

ROB: Yeah, it feels like it's kind of selling Girl Scout cookies. So I think, you know, my measured advice as always is, you know, keep track of all these different market factors that are happening. You know, we've sort of outlined them all so you can take a look at them individually, look at how they all act on each other in concert, then take a look at your business and its needs, and then decide accordingly. Talk to your trader because most of them have seen this before.

MIKE: Talk to your trader!

ROB: Yeah. And I think that if we're all sort of very disciplined and good, we will set ourselves up by the decisions we make in the next few months. And I mean, all of us, clients, traders, exporters, everybody, we'll set ourselves up for a really good 2026.

MIKE: Yeah, cool.

ROB: Which is what we want. Great. And I am looking forward to everyone getting to see our ugly mugs for real, once this studio transformation is complete, we are standing here, literally in the middle of a work zone, but it's going to be awesome. Can't wait to do it.

MIKE: It's gonna be fun.

ROB: Great, thanks, Mike.

MIKE: Thank you.

MIKE: You've been listening to Coffee Memo with Rob Stephen. Executive Producer for The Covoya Coffee Podcasting Network is me, Mike Ferguson. Our Coffee Memo theme music is “Jealous Dogs” by The Pretenders. If you know, you know. If you don't know, ask. If you've enjoyed this or any podcast on The Covoya Coffee Podcasting Network, please do all the things. Rate, review, follow, or subscribe, and tell three friends. Right now. I'll wait.

You'll find a link to our listener survey in the show notes. Please take the survey. Please. I'm begging you. And remember two things. You can email me at mike.ferguson@covoya.com and “Black Coffee” is performed by the one and only Ella Fitzgerald.

ROB: This is mic number one. Isn't this a lot of fun?