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

Coffee Market Report

31 Aug 2017

The licenced to hold New York certified stocks coffee warehouses within the cities of Houston and Galveston have confirmed that so far there has been no damage caused by the severe flooding, which has come with the lingering tropical storm Harvey. However, with the effects of the storm continuing over coastal Texas, the warehouses remain closed for the present.

Meanwhile the steadily and perhaps relatively aggressively so, certified washed arabica coffee stocks that are held against the New York market, continue to contribute to the bearish nature of this market at present. These stocks dominated by the European based warehouses of the exchange in Antwerp, Barcelona, Hamburg and Bremen, which presently account for 1,248,524 bags or 73.76% of the stocks. As they likewise account for 84,682 bags or 89.16% of the coffees pending grading for the exchange.

The New York certified stocks aside, the markets are presently focused upon the prospects for rising coffee supply from the new main Colombian crop and soon followed, but the new and potentially larger new Mexican and Central American crops and along with the larger new Vietnam robusta coffee crop. Thus, with the potential for significant volumes of nearby new crop coffee supply, there is presently no supportive news for the coffee terminal markets.

There is however the question over the Brazil weather as while with the presumption for normal weather over the coming seven months or so there are forecasts for the country to have a new 2018 crop that might be as much as 60 million bags, the weather still has to prove its case. Especially so as following the recent rains that fell over most of the main coffee districts and have triggered some flowerings towards next year’s crop, it has been mostly dry and should there not be any further rains within the next couple of weeks, there shall be speculation over possible abortion of these flowerings and a decline in the coming years crop potential. But this aside, there is seemingly no other short-term potential for market supportive news for either of the terminal markets.

The mainstream northern hemisphere physical coffee markets are meanwhile coming out of their summer holiday season but with the pending long weekend that comes with the Labour Day holiday in the U.S.A. on Monday next week, one would think that physical coffee trading activity might remain muted over the next couple of days. Especially so as with the reference prices of the coffee terminal markets having slipped back over the past couple of weeks, there is little in the way of selling aggression on the part of the majority of the coffee producers. But there was nevertheless, some signs of consumer market advantageous price fixation buying activity coming to the fore at the market lows yesterday, which assisted to halt the slide for the day.

The November to December contracts arbitrage between the London and New York markets broadened yesterday, to register this at 34.08 usc/Lb., while this equates to 26.58% price discount for the London Robusta coffee market.

The Certified washed Arabica coffee stocks held against the New York exchange were seen to increase by 16,712 bags yesterday; to register these stocks at 1,692,770 bags. There was meanwhile a smaller in number 5,904 bags decrease in the number of bags pending grading for this exchange; to register these pending grading stocks at 92,975 bags.

The commodity markets and against some renewed stability for the U.S. dollar were mostly on the back foot yesterday, to see the overall macro commodity index taking a marginally softer track for the day. The Sugar, Cotton and Orange Juice markets nevertheless had a day of buoyancy and with presumably some concern over refinery closures in Texas the U.S. Oil markets were steady, while the Brent Oil, Natural Gas, Cocoa, Coffee, Copper, Wheat, Corn, Soybean, Gold and Silver markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.14% lower, to see this Index registered at 396.74. The day starts with the U.S. Dollar showing a degree of buoyancy and trading at 1.292 to Sterling and at 1.187 to the Euro, while North Sea Oil is steady and is selling at $ 50.95 per barrel.

The London and New York markets started the day yesterday trading marginally south of par, but with the New York market soon attracting some support and moving back into modest positive territory and to see the markets taking this mixed stance into the early afternoon trade. As the afternoon progressed and with the negative nature of the stronger U.S. dollar and the softer macro commodity index, the New York market slipped back into negative territory and with sell stops being triggered, New York joined the London market in extending the losses. The markets did however bounce back from the lows in late trade and while ending the day on a soft note, the volatile New York market did post a reasonable recovery.

The London market ended the day on a soft note and with 69.8% of the earlier losses of the day intact, while the New York market ended the day on a modestly softer note and having recovered 74.3% of the earlier losses of the day by the close. This close and its contribution to something of a negative picture for the charts does little to inspire confidence, but perhaps the ability of the New York market to have posted a reasonable recovery late in the day might bring with it some caution and perhaps a degree of buoyancy due for early trade today, against the prices set yesterday, as follows:

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

SEP 2105 – 41                                                 SEP 126.95 – 0.35
NOV 2075 – 30                                              DEC 128.20 – 0.45
JAN 2044 – 22                                              MAR 131.70 – 0.40
MAR 2030 – 19                                            MAY 134.00 – 0.40
MAY 2034 – 17                                              JUL 136.25 – 0.40
JUL 2052 – 16                                                SEP 138.50 – 0.40
SEP 2056 – 13                                               DEC 141.80 – 0.30
NOV 2060 – 13                                             MAR 145.00 – 0.25
JAN 2066 – 13                                              MAY 147.00 – 0.30
MAR 2071 – 13                                              JUL 149.00 – 0.30