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

Coffee Market Report

01 Sep 2016

With the month of August past, the Indonesia government trade data from Sumatra which is the leading coffee producing island within Indonesia, has reported that the islands robusta coffee exports for the month were 339,960 bags or 45.61% lower than the same month last year, at a total of 405,387 bags. This dip in exports has contributed to the islands cumulative robusta coffee exports for the first eleven months of the present October 2015 to September 2016 coffee year to be 2,313,477 bags or 49.91% lower than the same period in the previous coffee year, at a total of 2,321,726 bags.

This sharp dip in robusta coffee exports for the coffee year so far from Sumatra is very much in line with the expectations of a lower new crop that was due, as a result of the relatively dry conditions that were experienced over the last quarter of last year and the first quarter of this year, as a result of the El Nino phenomenon that occurred. But it is perhaps excessive to think that the damage was as dramatic as might be indicated by the close to 50% dip in exports for the first nine months of the present coffee year, as there is evidence that there are now increasing volumes of robusta coffee being offered by the countries exporters.

There is however no doubt that the countries robusta coffee supply to the consumer markets shall remain lower than was experienced over the previous coffee year and that while there shall be good volumes of exports recorded over the rest of the year, that overall Indonesian robusta coffee supply shall remain relatively tight until the second half of next year. This more modest Indonesian robusta coffee supply to be accompanied by negligible conilon robusta coffee supply from Brazil over the same period, to leave Vietnam to be very much holding the reigns of consumer market robusta coffee supply over the next ten months.

Thus with expectations for a marginally smaller new Vietnam crop due to start being harvested next month, while the country shall have reduced carryover robusta coffee stocks into the new crop, one can foresee that Internal market price resistance on the part of Vietnamese coffee farmers and internal traders shall continue for the foreseeable future. This being a factor that is likely to continue to buoy the fortunes of the related London coffee market, for the last quarter of this year and the first half of the coming year. Albeit that the London market will continue to track to a degree, the direction taken by the more speculative, volatile and somewhat unpredictable New York arabica coffee market that does not for the present, suffer from the same degree of potential tightening of supply.

The November to December contracts arbitrage between the London and New York markets broadened yesterday, to register this at 64.13 usc/Lb., while this equates to a 43.61% 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 825 bags yesterday; to register these stocks at 1,282,594 bags. There was meanwhile a similar in volume 741 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 6,670 bags.

The commodity markets had a mixed but overall another dismal day yesterday and with the muscle of the U.S. dollar tending to add to the lacklustre performance for many of the markets, which saw the overall macro commodity index continuing on a downside track for the day. The Natural Gas, Cocoa, Coffee, Corn and Silver markets nevertheless had a day of buoyancy and the Copper market was steady, while the Oil and Orange Juice markets took a sharp dip for the day and the Sugar, Cotton, Wheat, Soybean and Gold markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.15% lower; to see this Index registered at 412.35. The day starts with the U.S. dollar showing some degree of follow through buoyancy in early trade and trading at 1.314 to Sterling and 1.115 to the Euro, while North Sea Oil is showing some degree of buoyancy in early trade and trading at 46.25 per barrel.

The London and New York markets started the day with modest buoyancy, but with the New York market coming under some pressure and heading back to par for early afternoon trade, while the London market retained some degree of buoyancy. As the afternoon progressed and despite the negative influences of the overall macro commodity index the New York market showed some muscle and likewise the London market maintained a positive stance, to see the markets head towards a positive end to the day. The London market ended the day on a positive note and with 85.7% of the earlier gains of the day intact, while the New York market ended the day on likewise positive note and with 74.1% of the earlier gains of the day intact. The ability of the markets to hold on to a positive stance for the day is likely to inspire some degree of confidence and one might expect to encounter a steady start for early trade today against the prices set yesterday, as follows:

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

SEP 1793 + 13                                    SEP 145.90 + 1.15
NOV 1828 + 12                                  DEC 147.05 + 1.00
JAN 1847 + 10                                   MAR 150.20 + 0.95
MAR 1862 + 10                                 MAY 152.10 + 0.90
MAY 1876 + 11                                    JUL 153.65 + 0.85
JUL 1887 + 11                                      SEP 155.10 + 0.85
SEP 1899 + 11                                     DEC 157.10 + 0.85
NOV 1912 + 11                                  MAR 159.10 + 0.85
JAN 1921 + 11                                    MAY 160.25 + 0.85
MAR 1928 + 11                                    JUL 161.35 + 0.80