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

Coffee Market Report

17 Aug 2016

Brazil’s largest coffee cooperative Cooxupe and operating within the arabica coffee regions of the country have reported that 82% of the new crop had been harvested by Friday last week, which further confirms that the new Brazil crop is getting close to completion. Thus further indicating that the new crop should be mostly in by the end of this month and therefore, well ahead of the late September start of the spring and summer rain season and the first flowerings for the next 2017 crop.

Meanwhile with the Brazil real having weakened marginally to trade at present at 3.2 to the U.S. dollar and while the New York market is presently showing a degree of buoyancy, it can be expected to assist to inspire internal market selling. However, with inflation having increased costs over the past year one might not expect to see aggressive selling and for the present exporters are experiencing internal market price resistance, which is tending to inflate the asking price differential for new sales. Particularly so as exporters strive to buy in stocks to cover short sold export commitments, which is assisting farmers to hold back for better value.

Contrary to the general weather reports that indicate a normal monsoon season in India, there are many reports from coffee farmers in India that indicate that they have not experienced such an intensity of rain so far and that their rains are so far below average. These reports accompanied by forecasts for a dip in production for the forthcoming new crop, but for the present and with no doubt that there have been rains and presumably sufficient to support the development of the near crop, there are no specific crop loss figures being voiced.

This said the short term situation is that consumer market coffee stocks are relatively high and with the new crop Brazil coffees now starting to come to the market and with what is expected to be a larger new Central American crop due to start coming to the market over and above the still to be determined in size new Colombian main crop, the consumer market industry buyers remain relatively complacent for the present. These being factors that contribute to the prevailing lacklustre trade for the physical coffee market, which is really only expected to pick up in volume post the summer holiday season, during the coming month.

The November to December contracts arbitrage between the London and New York markets broadened yesterday, to register this at 58.65 usc/Lb., while this equates to a 41.67% 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 decrease by 135 bags yesterday; to register these stocks at 1,289,510 bags. There was meanwhile a larger in volume 9,375 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 9,685 bags.

The Certified Robusta coffee stocks held against the London exchange were seen to decrease by 5,500 bags or 0.23% during the week of trade leading up to Monday 15th. August, to register these stocks at 2,408,833 bags, on the day.

The commodity markets unlike the generally negative nature of the equity markets, mostly gained some support from a weaker dollar and showed some degree of buoyancy yesterday, to see the overall macro commodity index taking a positive track for the day. Albeit that there is some degree of uncertainty for the medium term fortunes of the influential U.S. dollar, as the speculation on U.S.A. interest rates possibly being increased during the September meeting of the Federal, is coming to the fore. The Oil, Natural Gas, Sugar, Cocoa, New York arabica Coffee, Copper, Wheat, Corn, Soybean, Gold and Silver markets had a day of buoyancy, while the London robusta Coffee, Cotton and Orange Juice markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.18% higher; to see this Index registered at 422.54. The day starts with the softer U.S. dollar near too steady and trading at 1.304 to Sterling and 1.126 to the Euro, while North Sea Oil is steady in early trade and trading at 48.25 per barrel.

The London market following a couple of minutes of buoyancy started the day yesterday on a softer note, while the New York market showed some buoyancy for early morning trade. It was however tentative buoyancy for the New York market and with the market taking only a steady track into the early afternoon trade, while the London market continued to trade south of par. As the afternoon progressed the New York market followed the London market south but bounced off the lows and back into positive territory, while the London market continued to maintain a softer track and to see the markets take a mixed track to the close of the day. The London market continued to end the day on a very soft note and with 92.3% of the earlier losses of the day intact, while the New York market ended the day with very modest buoyancy and only 21.1% of the earlier gains of the day intact. This close does little to inspire and with the technical picture of the markets tending to look somewhat negative, one might expect to see perhaps some degree of modest corrective buoyancy for the London market, but perhaps a softer start for the New York market against the prices set yesterday, as follows:

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

SEP 1775 – 26                                 SEP  137.40 + 0.45
NOV 1810 – 24                               DEC 140.75 + 0.20
JAN 1830 – 23                               MAR 143.90 + 0.15
MAR 1842 – 22                              MAY 145.75 + 0.15
MAY 1854 – 22                                JUL 147.55 + 0.20
JUL 1868 – 22                                   SEP 149.15 + 0.20
SEP 1880 – 22                                 DEC 151.40 + 0.20
NOV 1893 – 22                              MAR 153.50 + 0.20
JAN 1902 – 22                               MAY 154.65 + 0.20
MAR 1909 – 22                               JUL 155.70 + 0.25