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

Coffee Market Report

13 Sep 2017

Brazil weather reports indicate that most of the main coffee districts have had a dry week and it is likely to remain the same for the coming week, with the exception of the possibility of some light rains due for the most westerly areas across Bahia and the fringes of Minas Gerais. The warm dry days are contributing meanwhile, to some degree of speculation over the threat to the sustainability of the early flowering that came with the early rains during last month, over most of the main arabica coffee districts. With many already speculating that this might lessen the chances that Brazil shall be able to achieve a new crop in 2018 that might be as large as 60 million bags, but it is early days and the focus remains upon the prospects for the rains later this month and during October.

Brazil aside, there is nothing in the way of fundamental supportive news coming to the markets to determine speculative and fund sector direction. The lower year on year coffee export figures; as reported by natural arabica coffee producer Brazil and to some extent, the lower robusta export performance reported from Vietnam as the current coffee year from this largest robusta producer draws to a close; is counteracted in part by the more than comfortable coffee stocks that are being held within consumer market warehouses.

Thus, with the new Brazil July 2017 to June 2018 arabica coffee shipments to consumer markets anticipated to start to pick up pace heading into the last quarter of the calendar year and in time to meet traditionally higher volume winter northern hemisphere roaster activity, there is in addition, the prospect so long as the weather remains conducive ahead of these respective harvests to start around October this year of shipments from the new South and Central American washed arabica coffee crops and this together with the new Vietnam robusta coffee crop on the horizon. Indications are that the main northern hemisphere consumer markets are entering the higher volume winter season with no lack of available supply and with a degree of complacency for physical trade at present.

The November to December contracts arbitrage between the London and New York markets broadened yesterday, to register this at 45.73 usc/Lb., while this equates to 33.86% 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 18,821 bags yesterday; to register these stocks at 1,774,519 bags. There was meanwhile an decrease at 14,144 bags in the number of bags pending grading for this exchange; to register these pending grading stocks at 67,120 bags.

The commodity markets had another mixed day of trade yesterday, the U.S. Dollar continued to build on gains while speculative market focus has seemingly moved from the implied economic impact of the Hurricane season, to that of the pending meetings of the U.S. Federal Reserve next week. It was a positive day for Cocoa, Coffee, Orange Juice, Wheat, Gold, Silver and Palladium. It was a lower day for Cotton, Corn, Soybean, Copper, Wheat and Platinum markets on the day. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.2892% lower, to see this Index registered at 409.04. The day starts with the U.S. Dollar steady and trading at 1.33 to Sterling and at 1.197 to the Euro, while North Sea Oil is steady and is selling at US$ 54.92 per barrel.

The coffee markets started the day on a mildly positive note in London and below par in New York, with London slipping below par shortly thereafter and the morning session progressed with both markets in a narrowly softer range. The generally more buoyant sentiment experienced across the commodities board seemed to spill into the New York coffee market in particular, as the America’s came on to the floor at the outset of their business day and with limited producer sellers waiting in the wings, the New York market broke through unchanged and with volume on the prompt month doubled in less than two hours of activity and with action either side of the new level, continued to post upward gains as the day moved into the afternoon. The London market followed suit with less furvour assisted by stop loss triggers in quick succession and set the market onto a positive track by early afternoon. The new higher levels attracted additional selling activityto apply pressure by mid afternoon, although underlying buyer activity set direction for the latter half of the day, which saw both markets regain a positive track and settle at the highs of the day on the close. The markets finished the day in positive territory after a good volume day, to set the close yesterday, as follows;

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

SEP    1990 + 18                         SEP  133.80 + 3.20
NOV  1969 + 18                         DEC 135.05 + 3.20
JAN    1954 + 18                        MAR 138.50 + 3.15
MAR  1951 + 18                        MAY 140.85 + 3.15
MAY  1962 + 20                        JUL   143.10 + 3.10
JUL    1991 + 20                        SEP  145.40 + 3.15
SEP    2000 + 20                        DEC 148.70 + 3.15
NOV   2011 + 20                       MAR 151.90 + 3.10
JAN    2022 + 20                       MAY 153.90 + 3.05
MAR   2027 + 20                      JUL   155.90 + 3.05