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

Coffee Market Report

15 Sep 2016

The Customs authorities in Vietnam have reported that the country’s coffee exports in August were 9.2% higher than the previous month, at a total of 2,544,633 bags. This they report has contributed to the countries cumulative coffee exports for the first eleven months of the present October 2015 to September 2016 coffee year to be 33% higher than the same period in the previous coffee year, at a total of 26,833,333 bags.

This August export number which is well in excess of the forecasts from the trade in Ho Chi Minh City for exports of between 1.67 million and 2 million bags would indicate that by the end of this month that Vietnam shall have exported well in excess of 28 million bags for the present coffee year and perhaps even, as much as 29 million bags. Thus with an unspecific and difficult to accurately estimate domestic consumption that has risen to well in excess of 2 million bags, one would foresee that coffee absorption for the present coffee year would have been something in the order of at least 31 million bags.

This figure would indicate that at least 2 million and perhaps well in excess of 3 million bags of the carryover stocks into the last harvest would have been liquidated, which shall see the country carry a more normal carryover stock of around 4 million bags into the new crop. But it is a new crop of mostly robusta coffees that has been widely forecasted to be a smaller new crop of around 27 million bags and with many talking of even lower volume and thus with the need to always have carryover stocks to fuel export demand for the first two months of the October to December harvest, the potential for Vietnam exports to be a more modest 26 million to 27 million bags for the coming October 2016 to September 2017 coffee year.

The Ivory Coast as the second largest robusta coffee producer in Africa, have reported that the country’s coffee exports for the first seven months of this year were 181,783 bags or 31.97% higher than the same period last year, at a total of 750,300 bags. This is well short of the estimated exports for in excess of 1.5 million bags for this year, which would indicate that with the reference prices of the London robusta coffee market relatively buoyancy, that there shall be good export volumes reported from the Ivory Coast for the rest of the year.

The Brazil Real has taken a relatively sharp dip in value and it this morning trading at 3.34 to the U.S. dollar, which shall be with the relatively favourable reference prices of the New York arabica coffee market conducive to more active internal market selling, but with the farmers already relatively well sold for their new crop arabica coffees and little in the way of carryover stocks into the new crop and uncertainty over the prospects for the next crop, one would not expect to see and significant selling aggression. But it is a factor is likely to inspire some degree of expectation for increased Brazilian price fixation selling pressure for the New York market, to somewhat dampen speculative spirits within this market.

The November to December contracts arbitrage between the London and New York markets broadened yesterday, to register this at 60.81 usc/Lb., while this equates to a 40.84% 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 with the exchange were seen to increase by 672 bags yesterday; to register these stocks at 1,270,014 bags. There was meanwhile a larger in number 1,007 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 12,356 bags.

The commodity markets had a mixed day yesterday and despite the U.S. dollar coming of the boil a little, the influence of a softening in Oil prices contributed to the overall macro commodity index taking a softer track for the day. The Cocoa, New York arabica Coffee, Cotton, Copper, Wheat, Corn, Gold and Silver markets had a day of buoyancy and the New York arabica Coffee market was steady, while the Oil, Natural Gas, Sugar, Orange Juice and Soybean markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.21% lower; to see this Index registered at 412.46. The day starts with the U.S. dollar steady in early trade and trading at 1.324 to Sterling and 1.124 to the Euro, while North Sea Oil is steady in early trade and trading at 45.35 per barrel.

The London market opened the day on a corrective softer note, while the New York market started the day on a positive note and with both markets maintaining this mixed track into the afternoon trade. As the afternoon progressed both markets came under some pressure and with the London market trading deeper into negative territory but with the markets soon recovering to see the New York posting additional gains and the London market moving back towards par, but with the New York market coming back off the highs and taking a modestly positive sideways track to the close. The London market ended the day on a steady note and having recovered 91.7% of the earlier losses of the day by the close, while the New York market ended the day on a modestly positive note and with 37% of the earlier gains of the day intact. This relatively steady close is supportive for sentiment for the markets but with the weaker Brazil Real there might be some degree of anticipation of increased selling for the New York market and thus one might expect to see as steady to softer start for early trade today, against the prices set yesterday, as follows

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

SEP 1933 – 3                                       SEP  147.80 + 0.45
NOV 1942 – 1                                     DEC 148.90 + 0.50
JAN 1960 + 1                                     MAR 152.10 + 0.50
MAR 1971 + 2                                   MAY 153.95 + 0.50
MAY 1979 + 2                                     JUL 155.70 + 0.50
JUL 1986 + 2                                        SEP 157.10 + 0.55
SEP 1994 unch                                     DEC 159.00 + 0.55
NOV 2003 – 2                                     MAR 160.70 + 0.50
JAN 2012 – 10                                    MAY 161.70 + 0.50
MAR 2019 – 10                                    JUL 162.65 + 0.50