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


I. & M. Smith (Pty) Ltd.

Coffee Market Report

25 Nov 2016

The respected Brazil analysts Safras & Mercado who have assessed the new Brazil crop at 54.9 million bags this year, have estimated that already 68% of this new crop has been sold. This they say is well ahead of the 63% factor at the same time last year and even more so, than the average 57% sold factor over the past five years.

One might think though that with the new crop post the dismal conilon robusta coffee harvest being heavily weighted towards the arabica coffees this year and with the reference prices of the New York market having softened over the past few days of trade, that the combination of being well sold and the lower value now being offered, shall start to retard selling activity within the internal market in Brazil. This so long as the funds remain steady, might contribute to reduced price fixation selling activity within the New York market and might assist to stabilise the market a little.

Meanwhile with new crop harvest momentum building within Vietnam and with some suggesting that already close to 40% of the new robusta crop has been harvested, it is building up price fixation selling pressure within the now softer London market. But with the reference prices of this market less attractive at present and with the Vietnam farmers fully aware of the fact that the country is due to encounter less competition from Brazil, Indonesian and Indian robusta selling over the next six months, one might think that internal market price resistance might soon start to come into play. Which would take some of the negative pressure that presently prevails, within the London market.

Meanwhile the Fitch Group BMI Research report and with the new Vietnam coffee crop coming in, have forecasted that this new crop shall be approximately 5% lower than the last crop, at a total of 26.88 million bags. While the report has suggested that so long as 2017 weather conditions are normal, that the Vietnam crop could recover to approximately 28.77 million bags for the end of next year. The big question in terms of the most probably smaller Vietnam crop that many have forecasted to be even lower than the BMI number, is what were the carryover stocks of robusta coffees into this new crop. Indications in this respect were for approximately 5 million bags, but with the delayed start to the new crop this year, one would think that most of these stocks shall have been liquidated by the end of the year.

Nevertheless, if one is to estimate the combination of carryover stocks and the higher than most BMI new crop might provide for a coffee supply in excess of 31 million bags and deduct at least 2 million bags for domestic market consumption and the requirement for at least 3 million bags of carryover stocks into the next 2017 crop, it would reduce exportable coffee availability for the October 2016 to September 2017 coffee year for Vietnam to only close to 26 million bags. This number would not allow for Vietnam to match the high volumes of mostly robusta coffees that were exported during the previous coffee year and with the lower volumes due from the other robusta coffee suppliers for the first half of next year, there is remains the perception for medium term tighter supply of robusta coffees and reason to be somewhat confident in the medium-term prospects for the London market.

The March to March contracts arbitrage between the London and New York markets but with New York unchanged due to the holiday broadened yesterday, to register this at 66.53 usc/Lb., while this equates to a 42.19% 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 with the Thanksgiving Holiday close for the day remained unchanged yesterday; to register these stocks at 1,259,086 bags. There was likewise no change to the number of bags pending grading for this exchange; to register these pending grading stocks at 14,705 bags.

With the holiday in the U.S.A. there remained only selected commodity markets in play yesterday and with the London robusta Coffee and Cocoa markets having a softer day’s trade and the Sugar market steady, while the Oil market had a day of modest buoyancy. Thus, without the participation of many markets the Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is unchanged; to see this Index registered at the Wednesday level of 419.51. The day starts with the U.S. dollar near to steady and trading at 1.244 to Sterling and 1.057 to the Euro, while North Sea Oil is steady and is selling at 47.10 per barrel.

The London and New York markets predictably started the day yesterday on a softer note, but with the market soon hitting a support base and to take a sideways softer track for the rest of the day’s trade. The London market ended the day on soft note and with 77.4% of the earlier losses of the day intact, while the New York market enjoyed the Thanksgiving Day holiday. This close does little to inspire confidence, but one might expect that with the New York market returning to the field of play today that there shall be a degree of cautious hesitancy and perhaps the prospects for some degree of buoyancy for early trade today against the prices set yesterday in London and in New York on Wednesday, as follows:


NOV 2050 – 24                                                DEC 154.65 – 2.60
JAN 2022 – 24                                                 MAR 157.70 – 4.15
MAR 2010 – 34                                               MAY 160.10 – 4.10
MAY 2017 – 35                                                 JUL 162.20 – 4.10
JUL 2024 – 33                                                  SEP 164.05 – 4.10
SEP 2031 – 29                                                 DEC 166.65 – 4.05
NOV 2036 – 25                                               MAR 169.10 – 3.95
JAN 2043 – 25                                                MAY 170.25 – 3.90
MAR 2057 – 23                                                 JUL 171.25 – 3.90
MAY 2073 – 23                                                 SEP 172.05 – 4.00