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

Coffee Market Report

20 Oct 2017

The weather forecasts from Vietnam are tending to indicate that the new crop harvest shall only start in any significant volume in three to four weeks’ time, by when many of the countries exporters shall start becoming desperate for new crop stocks, to support their nearby forward commitment export contracts. Thus, while one would think, that there shall be quite some degree of internal market price resistance for early sales of new crop coffees the farmers in Vietnam are smart and fearing that once the new crop is in full swing that the reference prices of the international market start to soften, many might prove to be ready sellers at prevailing price levels.

Brazil coffee farmers following a dry week have their focus on the potential for rain over the southern arabica coffee districts for this coming weekend and thereon, for most if not all districts for the coming week. But in the meantime, and with the prevailing soft reference prices of the New York market hindering exporters in terms of prices they can afford to pay, the internal market selling activity remains slow for the present.

Aside from the still to be determined weather issues for the two largest coffee producers that are so far not threatening to medium to longer term coffee supply, there really is nothing in the way of striking fundamental news forthcoming to direct market sentiment. Other than the fact that ahead of the weekend and the potential for Brazil rainfall reports, there might be some encouragement for the short sold speculative and fund sectors of the New York market to continue from yesterday with some volumes of short covering profit taking buying activity.

The January 2018 to December 2017 contracts arbitrage between the London and New York markets broadened yesterday, to register this at 37.36 usc/Lb., while this equates to 29.45% 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 2,929 bags yesterday; to register these stocks at 1,866,685 bags. There was meanwhile a larger in number 5,104 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 71,640 bags.

The commodity markets were mixed in trade yesterday, but with the U.S. dollar coming off the boil during the day, many markets added some value and to see the overall macro commodity index taking a modest positive track for the day. The Sugar, Cocoa, Coffee, Orange Juice, Wheat, Corn, Soybean, Gold and Silver markets had a day of buoyancy and the Natural Gas market was steady, while the Oil, Cotton and Copper markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.44% higher, to see this Index registered at 413.01. The day starts with the U.S. Dollar showing a degree of early buoyancy trading at 1.311 to Sterling and at 1.181 to the Euro, while North Sea Oil is showing a degree of buoyancy and is selling at US$ 57.70 per barrel.

The London and New York markets started the day yesterday on a positive note and with both markets maintain their positive stance, into the early afternoon trade. Trade was however thin within the New York market but with the Americas opening up for the day and more activity coming to the board, trade picked up in volume and with short covering buy stops being triggered, the New York market posted further gains, while the London market maintained a more subdued positive stance. The New York market did however fall back from the highs in late trade, but to nevertheless end the day with respectable gains, while the London market ended off the day close to its highs of the day.

The London market ended the day on a positive note and with 92.3% of the earlier gains of the day intact, while the New York market ended the day on a likewise positive note and with 68% of the earlier gains of the day intact. This close does assist to paint a more positive technical picture for the markets and perhaps with the support of the potential for some further short covering activity within what is still a heavily sold New York market, one might expect to see a degree of follow through buoyancy for early trade today, against the prices set yesterday, as follows:

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

NOV 2028 + 28                                             DEC 126.85 + 2.55
JAN 1973 + 24                                             MAR 130.60 + 2.50
MAR 1950 + 21                                           MAY 133.05 + 2.50
MAY 1956 + 21                                             JUL 135.40 + 2.45
JUL 1980 + 19                                               SEP 137.75 + 2.50
SEP 1986 + 17                                              DEC 141.15 + 2.45
NOV 1992 + 17                                           MAR 144.45 + 2.40
JAN 1990 + 17                                             MAY 146.45 + 2.35
MAR 1989 + 17                                             JUL 148.45 + 2.30
MAY 1994 + 17                                             SEP 150.40 + 2.35