I. & M. Smith (Pty) Ltd. since 1915
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I. & M. Smith (Pty) Ltd.

Coffee Market Report

16 Aug 2016

The latest Commitment of Traders report from the New York arabica coffee market has seen the shorter term in nature Managed Money fund sector of this market decrease their net long position within the market by 10.21% over the week of trade leading up to Tuesday 9th. August; to register a net long position of 29,286 Lots. Meanwhile the longer term in nature Index Fund sector of this market increased their net long position within the market by 1.87%, to register a net long position of 33,300 Lots on the day.

Over the same week the Non Commercial Speculative sector of this market decreased their long position within the market by 9.72%, to register net long position of 29,699 Lots. This net long position which is the equivalent of 8,419,535 bags is most likely to have been marginally reduced, following the period of mixed but overall more negative trade that has since followed and likewise, that of the Managed Money Fund sector within this market.

The latest Commitment of Traders report from the London robusta coffee market has seen the Speculative Non Commercial sector of this market increase their net long position within this market by 3.42% during the week of trade leading up to Tuesday 9th. August; to register a long position of 25,386 Lots. This net long position which is the equivalent of 4,231,000 bags has most likely been little changed to perhaps marginally decreased, following the period of mixed but overall only near to steady trade that has since followed.

The Green Coffee Association of the U.S.A. have announced that the countries port warehouse stocks increased by 97,965 bags or 1.58% during the month of July, to register these stocks at 6,308,577 bags at the end of the month. These stocks do not of course include the in transit bulk container coffees or the onsite roaster inventories, which with an approximate combined U.S.A. and Canadian weekly consumption that is fed by these stocks of 560,000 bags per week, would conservatively have been at least 1.1 million bags.

Therefore, if one is to consider the additional unreported stocks and look to end April stocks in North America of approximately 7.4 million bags, it would have equated to something in the order of 13 weeks of roasting activity. This number remains a safe reserve, in terms of the steady flow of new crop coffees from Colombia, Central America and Vietnam that are already coming to the market and soon to be followed, by the new crop coffees from Brazil.

The State Customs Department in Vietnam have reported that the countries coffee exports of mostly robusta coffees for the month of July were 2.33 million bags and therefore, a little higher than their forecasted 2.17 million bags. This performance they say has resulted in the countries cumulative coffee exports for the first ten months of the present October 2015 to September 2016 coffee year to be 31.5% higher than the same period in the previous coffee year, at a total of 24.33 million bags.

If one is to add the coffee exports for the coffee year so far and at least 1.7 million bags of domestic coffee consumption to be added by the end of the coffee year, it would bring the coffee year absorption so far too close to 26.1 million bags. Thus if one is to estimate a further 4 million bags of exports due over August and September, the probability of Vietnam coffee absorption for this present coffee year of well in excess of 30 million bags.

This would suggest that the exports during this coffee year, would have been supported by the liquidation of some of record carryover stocks into last crop, but with these stocks having been mostly estimated to have been well in excess of 5 million bags and some estimates considerably higher, one might expect that the carryover stocks into the new crop might be as much as 4 million bags. Thus sufficient in number to fill in for the estimated slight did that is due, for the new Vietnam crop. But with the problems this year for Brazil conilon robusta and Indonesian robusta production, these Vietnam robusta coffees shall be needed and one can still foresee a relatively tight robusta coffee supply for the medium term and through to around June 2017.

The November to December contracts arbitrage between the London and New York markets broadened yesterday, to register this at 57.36 usc/Lb., while this equates to a 40.81% price discount for the London robusta coffee market. This arbitrage remaining relatively attractive to roasters in comparison to arabica coffee prices, continues to inspire support for the robusta coffee sector of the industry.

The Certified washed Arabica coffee stocks held against the New York exchange were seen to increase by 6,169 bags yesterday; to register these stocks at 1,289,645 bags. There was meanwhile a smaller in volume 3,300 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 19,060 bags.

The commodity markets took a mostly positive track during trade yesterday, with the overall macro commodity index showing buoyancy through the day. The Oil, Sugar, Cocoa, Copper, Orange Juice, Corn, Soybean, Gold and Silver markets had a day of buoyancy and the Coffee markets were steady for day, while the Natural Gas, Cotton and Wheat markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.58% higher; to see this Index registered at 421.79. The day starts with the U.S. dollar near tending softer and trading at 1.291 to Sterling and 1.121 to the Euro, while North Sea Oil is near to steady in early trade and trading at 47.25 per barrel.

The London and New York markets started the day yesterday on a softer note, but with the New York market soon recovering while the London market remained south of par into the early afternoon trade. As the afternoon progressed the New York market and with perhaps the added influences of the positive nature of the macro commodity index added value and with the London market finally following New York into positive territory. The New York market did however finally falter and fell back towards par and with the London market once again dipping back to struggle to maintain par. The London market ended the day on a near to steady note and having recovered 92.9% of the earlier losses of the day by the close, while the New York market ended the day on a steady note but having shed 94.8% of the earlier gains of the day by the close. This rather hesitantly steady close is unlikely to be inspirational and one might expect to see little better than a follow through steady start for early trade today against the prices set yesterday, as follows:

LONDON ROBUSTA US$/MT     NEW YORK ARABICA USc/Lb.

SEP 1801 – 2                                   SEP 136.95 + 0.10
NOV 1834 – 1                                DEC 140.55 + 0.20
JAN 1853 – 1                                 MAR 143.75 + 0.20
MAR 1864 – 1                               MAY 145.60 + 0.15
MAY 1876 – 1                                 JUL 147.35 + 0.20
JUL 1890 – 1                                   SEP 148.95 + 0.20
SEP 1902 – 1                                  DEC 151.20 + 0.30
NOV 1915 – 1                                MAR 153.30 + 0.30
JAN 1924 – 1                                 MAY 154.45 + 0.30
MAR 1931 – 1                                  JUL 155.45 + 0.30