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

Coffee Market Report

23 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 16.25% over the week of trade leading up to Tuesday 16th. August; to register a net long position of 24,526 Lots. Meanwhile the longer term in nature Index Fund sector of this market increased their net long position within the market by 4.32%, to register a net long position of 34,740 Lots on the day.

Over the same week the Non Commercial Speculative sector of this market decreased their long position within the market by 17.74%, to register net long position of 24,428 Lots. This net long position which is the equivalent of 6,925,230 bags is most likely to have been increased again, following the period of mixed but overall more positive 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 1.18% during the week of trade leading up to Tuesday 16th. August; to register a long position of 25,685 Lots. This net long position which is the equivalent of 4,280,833 bags has most likely been little changed to perhaps marginally increased, following the period of mixed but overall more positive trade that has since followed.

Yesterday brought with it news of a late cold front entering South East Brazil and the accompanying talk of frost threat for some of the coffee districts, which triggered a bout of speculative short covering for the New York market. However late in the day the well-respected Brazilian meteorologist Somar Meteorlolgista came to the fore with their view that while cold weather was due that it would be unlikely to cause frost within the coffee and sugar districts, but one shall have to wait until later in the day today to evaluate the outcome of this probably last severe cold front for the Brazil coffee districts.

The short term frost threat aside it remains with Brazil in terms of the limited coffee news coming to the market, with speculation by agronomists within Brazil over the prospects for the next 2017 new arabica coffee crop. In this respect there have been a number of reports that due to the earlier cold snaps and the possibility that unseasonal early rains over some of the arabica coffee districts that might bring with it unsustainable early flowerings, that the next arabica coffee crop might be significantly lower than the present crop.

Noting that with limited volumes of carryover arabica coffee stocks into the present new crop, that Brazil would not be able to sustain arabica coffee supply at global demand levels for the October 2017 to September 2018 coffee year, unless the next crop is another good volume crop. But one might comment that it is early days and really one has to await the advent of the new spring and summer rain season that is due late in the coming month and to await the progress of this rain season and its impact by November this year, to truly start to assess the prospects for the next 2017 crop.

The November to December contracts arbitrage between the London and New York markets broadened yesterday, to register this at 63.35 usc/Lb., while this equates to a 43.27% 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 2,246 bags yesterday; to register these stocks at 1,284,409 bags. There was meanwhile a smaller in volume 1,667 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 9,424 bags.

The commodity markets and despite the U.S. dollar losing a bit of muscle yesterday generally came under a degree of pressure yesterday, to see the overall macro commodity index coming under pressure for the day. There were however some exceptions and the Natural Gas, Sugar, Coffee, Cotton and Soybean markets had a day of buoyancy, while the Oil, Cocoa, Copper, Orange Juice, Wheat, Corn, 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 0.47% lower; to see this Index registered at 421.60. The day starts with the U.S. dollar showing tending softer and trading at 1.316 to Sterling and 1.134 to the Euro, while North Sea Oil is tending softer in early trade and trading at 47.45 per barrel.

The London market and New York markets opened the day yesterday on a hesitantly steady note and with both markets trading either side of par, to take a thinly traded sideways track into the early afternoon trade. Trade remained thin, but as the afternoon progressed the New York market started to encounter some buoyancy and to move into firmer territory, with the London market following suit in a more sedate manner. The renewed buoyancy for the New York market started to trigger buy stops and to accelerate the gains and with the London market adding more value in sympathy, but while the New York market continued on a steady upside track for the rest of the day the London market hit something of a ceiling, to see this market take a positive sideways track for the rest of the day’s trade. The London market continued to end the day on a positive note and with 93.3% of the earlier gains of the day intact, while the New York market ended the day on a very positive note and with 96% of the earlier gains of the day intact. The markets shall start to trade before the clarity in terms of frost that is due with the dawn in Brazil, but following the somewhat unexpected rally in the coffee markets yesterday, it is probable that there might be a degree of corrective selling for the New York market in early trade today against the prices set yesterday, as follows:

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

SEP 1799 + 13                                   SEP 144.10 + 5.30
NOV 1831 + 14                                 DEC 146.40 + 4.80
JAN 1855 + 14                                  MAR 149.60 + 4.80
MAR 1868 + 14                                MAY 151.55 + 4.80
MAY 1881 + 14                                   JUL 153.30 + 4.80
JUL 1893 + 14                                     SEP 154.90 + 4.80
SEP 1905 + 14                                    DEC 157.10 + 4.80
NOV 1918 + 14                                 MAR 159.25 + 4.80
JAN 1927 + 14                                   MAY 160.45 + 4.80
MAR 1934 + 14                                   JUL 161.35 + 4.65