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

Coffee Market Report

07 Dec 2015
The latest Commitment of Traders report from the New York arabica coffee market has seen the Non Commercial Speculative sector of this market decrease their net short sold position within the market by 0.5% during the week of trade leading up to Tuesday 1st. December; to register a net short sold position of 26,166 Lots. This net short sold position which is the equivalent of 7,417,945 bags has most likely been decreased further, following the following days of more positive trade.

The National Coffee Growers Congress in Bogota came to a close on Friday, with the forecast that the country shall experience this year its largest crop for twenty two years, at a figure of approximately 14 million bags. With the reference that since 2009 and with the assistance of the on going extensive replanting program that has seen farmers being sponsored to replace aged trees with new disease resistant and higher yielding varieties, that there has been a 60% increase in average yield per hectare.

Colombia has over the past ten years lead by example in terms of their state sponsored replanting programs and has so far been followed by Honduras, where there has been a similar surge in coffee production over the past five years. These programs have similarly been followed within Vietnam, with the government forwarding special loans via the state run Agribank, been encouraging farmers to replace aged trees so as to buoy yields. But one might question albeit a proven success formula, how many other traditional coffee producing countries actually have the available finance, so as to invest in such an aggressive manner into their coffee industries.

Indonesia for one and with presently relatively low coffee farm yields, being a country that has the potential to double its production levels within the existing coffee farms, but so far lacking the commitment on the part of the government to invest into such programs. The incentive to make such long term investments into the growth of the Indonesian coffee industry is perhaps being dampened, by the prevailing soft nature of the international coffee markets.

Meanwhile within Asia and with the example of the success over the past twenty five years in Vietnam where coffee production has risen 2,800% from 1 million bags per annum to this year’s 29 million bags, there are a number of countries working towards becoming producers. With China increasing its production levels and now close to 1.5 million bags and neighbouring Laos looking to soon catch up with China, while the authorities in Myanmar are now starting to encourage farmers to start moving into the coffee industry. Thus one might foresee with large areas of land suitable for coffee farming within these latter two countries, that there shall be a steady increase in Asian coffee production over the next ten years and with a growing Asian consumption, most likely to further inspire that growth of the regional coffee industry.

The March on March contracts arbitrage between the markets broadened on Friday, to register this at 56.01 usc/Lb., while this equates to a 44.12% price discount for the London robusta coffee market. This arbitrage remaining relatively attractive to roasters in comparison to arabica coffee prices, but is perhaps due to widen further in time and when Vietnam stocks start to impact in more volume upon the fortunes of the London market.

The Certified washed Arabica coffee stocks held against the New York exchange were seen to decrease by 1,025 bags on Friday; to register these stocks at 1,819,313 bags. There was meanwhile a larger in volume 4,025 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 2,195 bags.

The Certified Robusta coffee stocks held against the London exchange were seen to decrease by 333 bags on Thursday 3rd. December; to see these stocks registered at 3,334,333 bags on the day.

The commodity markets had a mixed day on Friday, but despite the negative nature of the Oil markets, the overall macro commodity index maintained a degree of buoyancy for the day. The Cocoa, New York arabica Coffee, Cotton, Copper, Wheat, Corn, Soybean, Gold, Silver and Platinum markets had a day of buoyancy and the London robusta Coffee market was steady, while the Oil, Natural Gas, Sugar and Orange Juice markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.66% higher to see this Index registered at 386.64. The day starts with the U.S. Dollar steady in early trade and trading at 1.510 to Sterling and 1.087 to the Euro, while North Sea Oil is tending softer in early trade and is selling at 41.05 per barrel.

The London and New York markets started the day on Friday on a steady to buoyant note, but coming under some pressure and falling below par in early afternoon trade. However as the afternoon progressed, the New York market started to attract some support and move back into positive territory and with producer selling volumes over the market thin to take a positive track and to add to the gains later on in the afternoon progressed and to see the London market gaining some confidence, to move back into positive territory. The London market did however struggle to remain in positive territory, while the New York market continued to show its muscle through to the close. The London market ended the day on a positive note but with only 12.5% of the earlier modest gains of the day intact, while the New York market ended the day on a positive note and with 85.7% of the earlier gains of the day intact, which contributed to a 6.1% rise in value over the last four days of the week. This overall positive close and with the charts for the New York market tending to take a positive look, is likely to inspire a steady start for early trade today against the prices set on Friday, as follows:

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

JAN 1536 – 1                                             DEC    124.00 + 1.95
MAR 1564 + 1                                          MAR    126.95 + 2.10
MAY 1592 + 1                                          MAY    129.10 + 2.05
JUL 1615 + 2                                              JUL     131.15 + 2.05
SEP 1635 + 2                                              SEP     132.95 + 2.00
NOV 1654 + 1                                            DEC    135.65 + 1.95
JAN 1670 + 1                                             MAR   138.35 + 2.00
MAR 1688 + 1                                           MAY   140.20 + 2.00
MAY 1710 + 1                                             JUL   141.90 + 2.05
JUL 1744 – 1                                               SEP    143.30 + 2.00