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

Coffee Market Report

15 Nov 2016

The latest Commitment of Traders report from the New York arabica coffee market has seen the Non-Commercial Speculative sector of this market increase their net long position within the market by 5.44% during the week of trade leading up to Tuesday 8th. November; to register a net long position of 58,960 Lots on the day. This net long position which is the equivalent of 16,714,899 bags has most likely been decreased, following the period of mixed but overall more negative trade, which has since followed.

The latest Commitment of Traders report from the London robusta coffee market has seen the Speculative Non-Commercial sector of this market decrease their net long position within this market by 12.12% during the week of trade leading up to Tuesday 8th. November; to register a long position of 32,927 Lots. This net long position which is the equivalent of 5,487,833 bags has most likely been little changed, following the period of mixed but overall sideways trade that has since followed.

The speculative net long position within the New York market was really an extensive position on Tuesday last week, albeit that a percentage has since been liquidated, following the negative nature of trade for the second half of last week. But one might still think that with the fundamentals for rising washed arabica coffee supply in the coming months with the improved new Central American, Colombian and Peru crop and along with the early positive signs towards next year’s new Brazil arabica coffee crop, that the market still looks to be somewhat overbought. Unlike the positive nature within the London market, where the fundamentals most definitely point towards tighter robusta coffee supply, for the first half of the coming year.

The Vietnam Customs authorities have reported that the countries coffee exports of mostly robusta coffee for the month of October were 9.1% lower than the previous month of September, at a total of 1,955,000 bags. This dip in exports ahead of the rain delayed new crop harvest in Vietnam was below the official forecasts but was generally very much expected and has proved to be higher than the earlier trade forecasts for coffee exports for the month, which ranged between 1.17 million bags and 1.67 million bags.

The new crop harvest in Vietnam is however now in progress and with good volumes of mostly robusta coffees expected to start to impact by early next month, but in the meantime and with exporters still reliant upon carryover stocks to maintain their export volumes, one might expect to see a similarly modest export performance for this month. There are however further concerns over the latest forecasts for light rains over the main central highlands coffee districts in Vietnam for the second half of this month, which is likely to interrupt the progress of the new crop harvest.

Thus, while it is likely that with the combination of carry over robusta coffee stocks and new crop robusta coffees that there shall still be sufficient coffee at hand to fuel December export commitments, it might further restrain robusta coffee export volumes for December as well. A factor that would perhaps be seen to be supportive, for the near term fortunes of the London market.

The March to March contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 70.29 usc/Lb., while this equates to a 42.48% price discount for the London robusta coffee market. This arbitrage remains an attractive factor for the roasters who have considered robusta coffees to be an opportunist discount component, within their mostly arabica coffee blends.

The Certified washed Arabica coffee stocks held against the New York exchange were seen to decrease by 109 bags yesterday; to register these stocks at 1,272,258 bags. There was meanwhile a larger in volume 2,240 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 14,753 bags.

The commodity markets and with the U.S. dollar continuing to sport renewed muscle for the day, had another down day yesterday, with the overall macro commodity index taking a softer track for the day. The Natural Gas, Coffee and Copper markets had a day of buoyancy, while the Oil, Sugar, Cocoa, Cotton, Orange Juice, Wheat, Corn, Soybean, 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 0.61% lower; to see this Index registered at 410.51. The day starts with the U.S. dollar showing early buoyancy and trading at 1.248 to Sterling and 1.075 to the Euro, while North Sea Oil is showing early buoyancy and is selling at 43.35 per barrel.

The London and New York markets started the day on a marginally softer note but with the London market moving back to par and the New York market into modest positive territory, for early afternoon trade. This was however short lived and the New York market soon fell back into negative territory, while the London market maintained its buoyancy and started to build up some value as the afternoon progressed. This upside track within the London market was finally followed by the New York market which started on a recovery track and with buy stops being triggered, to take a sharp move up into positive territory and while the London market continued on its steady positive track through to the close the New York market hit something of a ceiling to take and erratic sideways tract through to the close. The London market ended the day on a very positive note and with 81.8% of the earlier gains of the day intact, while the New York market ended the day on a positive note and with 72.3% of the earlier gains of the day intact. This positive close and accompanied by the latest weather forecasts from Vietnam and the Proclamação da República Day or Independence Day in Brazil that takes Brazil selling off the field of play, might assist to buoy confidence. Thus, one might expect to see a follow through steady start for early trade today against the prices set yesterday, as follows:

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

NOV 2138 + 55                                    DEC 161.80 + 2.35
JAN 2099 + 72                                     MAR 165.45 + 2.35
MAR 2098 + 63                                   MAY 167.85 + 2.45
MAY 2104 + 59                                     JUL 169.85 + 2.45
JUL 2111 + 57                                        SEP 171.65 + 2.45
SEP 2118 + 57                                       DEC 173.95 + 2.50
NOV 2127 + 57                                    MAR 175.95 + 2.60
JAN 2135 + 57                                      MAY 176.95 + 2.55
MAR 2149 + 57                                      JUL 177.80 + 2.55
MAY 2165 + 57                                      SEP 178.55 + 2.50