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

Coffee Market Report

19 Aug 2016

Brazil’s largest coffee cooperative Cooxupe came to the fore yesterday with striking market supportive news and cited the due to the combination of two frosts, dry weather and biannual bearing following this year’s large arabica coffee harvest, that the next Brazil arabica coffee harvest shall potentially be 11,9% to 15.5% lower than this year’s arabica coffee harvest at between 37 million to 38 million bags.

This forecast that is in advance of the forthcoming spring and summer rain season and the flowerings that shall be triggered for the next 2017 crop might be seen to be extremely speculative and perhaps somewhat market manipulative in nature, but with its indication for a 5 million to 7 million bags dip in arabica coffee production for the coming year, did have some influence upon market sentiment yesterday.

The weather forecasts from Brazil did also come to the fore yesterday, with the report that while the weather is presently not frost threatening, that a new cold front is due to bring with it cooler weather. Thus triggering some degree of frost threat talk, to further assist to buoy speculative market sentiment for the day. This is however a threat that is post the traditional middle of August end to the Brazil frost season, but with world weather conditions having been unstable over the recent years, it is not an impossible threat. But one might foresee that it is an improbable possibility and a that a frost free weekend in Brazil might be somewhat threatening for market sentiment in New York, during the coming week.

Adding to the market supportive news yesterday were reports from Vietnam that indicated that due to crop replacement by many of the central highlands coffee farmers who have moved more aggressively into pepper plantings, that the forthcoming new crop might actually be as much as 10% lower than the last robusta coffee crop. Thus indicating that the new Vietnam crop might fall to 25 million bags and with the approximate 1.3 million bags of arabica coffees aside, a new robusta coffee crop of only approximately 23.7 million bags.

One might comment that with the potential for approximately 4 million bags of carryover robusta coffee stocks into the start of the new crop in October that these reports do not indicate any potential for short term shortages in global robusta coffee supply, but the reports to underpin the potential for continued and long term internal market price resistance in Vietnam. Controlled selling activity that is due to maintain positive asking export differentials from the countries exporters for the foreseeable future, to assist to buoy sentiment within the related London robusta coffee market.

The November to December contracts arbitrage between the London and New York markets broadened yesterday, to register this at 58.76 usc/Lb., while this equates to a 41.54% 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 1,696 bags yesterday; to register these stocks at 1,286,931 bags. There was meanwhile a larger in volume 3,635 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 3,540 bags.

The commodity markets gained some degree of support from the weaker nature of the U.S. dollar, against speculation that it is unlikely that the U.S.A. Federal Reserve Bank is due to raise dollar interest rates during the forthcoming September meeting, to see the overall macro commodity index having another day of buoyancy. The Oil, Natural Gas, Sugar, Cocoa, Coffee, Cotton, Copper, Wheat, Gold and Silver markets had a day of buoyancy and the Orange Juice market was near to steady for the day, while the Corn and Soybean markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.83% higher; to see this Index registered at 425.37. The day starts with the softer U.S. dollar showing a degree of early buoyancy and trading at 1.314 to Sterling and 1.133 to the Euro, while North Sea Oil is experiencing follow through buoyancy in early trade and trading at 50.05 per barrel.

The London market opened the day with follow through softness, but with the New York market showing a degree of early buoyancy and with the London market struggling back to trade around par for the early afternoon trade, while the New York market maintained its positive stance. As the afternoon progressed and with the combination of the positive influences of the overall macro commodity index and Brazil weather speculation coming into play the New York market added value and attracted supportive buy stops, while the London market followed suit into positive territory. Both markets retained most of their new found muscle for the rest of the day and the London market continued to end the day on a positive note and with 63.3% of the earlier gains of the day intact, while the New York market ended the day on a very positive note and with 83.7% of the earlier gains of the day intact. This close can be seen to be supportive for sentiment and ahead of the uncertainty of the Brazil cold front to come, which is likely to assist to bring a degree of follow through buoyancy for the markets for early trade today against the prices set yesterday, as follows:

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

SEP 1789 + 36                                  SEP 138.15 + 3.10
NOV 1823 + 38                               DEC 141.45 + 3.35
JAN 1844 + 39                                MAR 144.55 + 3.25
MAR 1857 + 41                              MAY 146.40 + 3.20
MAY 1870 + 41                                JUL 148.15 + 3.15
JUL 1882 + 41                                  SEP 149.80 + 3.20
SEP 1894 + 41                                 DEC 152.00 + 3.15
NOV 1907 + 41                              MAR 154.15 + 3.15
JAN 1916 + 41                                MAY 155.35 + 3.15
MAR 1923 + 41                                JUL 156.45 + 3.20