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

Coffee Market Report

11 Jun 2015
The United States Department of Agriculture Foreign Agriculture Service have come forth with their forecast for the Ethiopian Coffee production and exports for the countries forthcoming marketing year, which would presumably be related to the official financial year from the 8th. July 2015 to the 7th. July 2016. In this respect they foresee production for this coming year to be 33,333 bags or 0.51% higher than the previous 2014 to 2015 marketing year, at a total of 6,508,333 bags. The report forecasts that domestic consumption for the forthcoming marketing year shall be 2,995,000 bags, which would indicate an exportable factor of 3,513,333 bags for this coming coffee year.

The production figures within Ethiopia and similar to other relatively high domestic consumption producers such as Indonesia are however a difficult to accurately quantifiable, as while there are quantifiable figures that are related to deliveries to formal industry roasters and to the exporters, there is very little control over the numbers related to informal farmer to rural roasters. This is perhaps particularly the case with the approximate 4 million small scale farmers who produce the Ethiopian coffee crop, with the farmer’s home roasting their own coffee requirements and presumably delivering unofficial coffee to friends and families within both the rural and urban communities, for home roasting.

The report is nevertheless positive for the Ethiopian coffee industry in terms of its view that Ethiopia shall maintain its production levels for the coming year, to easily retain its dominant share of African coffee production and to run neck and neck with Uganda, in the lead of African coffee supply to the consumer markets. The problem is however that Ethiopia has to market its arabica coffees into the prevailing soft value of the international coffee prices, which is a factor that might suppress incentive to for farmers to further expand coffee production for the future and to consider other crop alternatives. Albeit that the firmer value of the U.S. dollar has taken some of the bite out of the negative effects of the soft coffee prices, in terms of financial returns to the countries coffee farmers.

With the climatic conditions within Brazil normal to even good sees this factor no longer making news and it is likewise the case for all of the other producer blocs for the present, which removes any speculation on climatic issues for medium to longer term world coffee supply. Albeit that there is a general view that there shall be a modest deficit in overall supply through to the next 2016 to 2017 coffee year, which will be easily countered by relatively good world coffee stocks and is therefore a factor that provides no real support for the speculative forces within the international coffee markets. Thus with unforeseen weather issues developing for any of the leading producer blocs aside, the markets are seemingly looking to retain their prevailing trading range for the foreseeable future. But perhaps threatened later in the year, should Brazil encounter yet another frost free June and July winter season and be in receipt of a good start late in September and follow on rains during the last quarter of the year, to indicate a 60 million bags plus new crop for 2016.

The arbitrage between the markets has broadened yesterday to register this at 58.85 usc/Lb., while this equates to an attractive 42.48% price discount for the London robusta coffee market. This arbitrage continues to inspire consumer market roaster interest in robusta coffees, which assist to take some of the bite out of the comparative firm arabica coffee prices.

The Certified washed Arabica coffee stocks held against the New York exchange were seen to increase by 3,725 bags yesterday; to register these stocks at 2,126,690 bags. There was meanwhile a smaller in volume 950 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 57,634 bags.

The commodity markets were mixed yesterday, but with the overall macro commodity index showing some buoyancy and seeing the markets taking a steady track for the day. The Oil, Natural Gas, Cocoa, London robusta Coffee, Cotton, Copper, Orange Juice, Gold, Silver and Platinum markets had a day of buoyancy, while the Sugar, New York arabica Coffee, Wheat, Corn and Soybean markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.13% higher to see this Index registered at 429.87. The day starts with the U.S. Dollar steady and selling at 1.549 to Sterling and 1.131 to the Euro, while North Sea Oil is tending steady in early trade and is selling at 64.70 per barrel.

The London market started the day on a steady note yesterday and with the New York market coming in with some early buoyancy within an environment of thin trade and with the London market soon moving up into positive trade and to see both markets enter the afternoon on a positive track. The New York market did however encounter some selling pressure to take it briefly back to par and with a recover to join London on its positive track as the afternoon progressed. The New York market did however once again shrug off any support that might have come with the latest and most certainly questionable modest official new 2015 coffee crop from Brazil and to move back into negative territory for late afternoon trade, with the London market likewise coming under some more modest pressure to come back towards par. The London market ended the day with modest buoyancy and with 35.7% of the earlier gains of the day intact, while the New York market ended the day on a softer note and with 52.6% of the earlier losses of the day intact. This lacklustre close to the day’s trade is unlikely to inspire much confidence and one might expect to see a thinly traded steady to perhaps marginally softer start for early trade today against the price set yesterday, as follows:

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

JUL 1740 + 6                               JUL   136.45 – 0.90
SEP 1757 + 5                               SEP   138.55 – 1.00
NOV 1775 + 3                             DEC  141.95 – 1.05
JAN 1793 + 2                              MAR 145.15 – 1.05
MAR 1814 + 2                            MAY 146.90 – 1.10
MAY 1835 + 2                              JUL 148.45 – 1.20
JUL 1854 + 2                                 SEP 149.90 – 1.20
SEP 1875 + 2                                DEC 151.75 – 1.20
NOV 1895 + 2                              MAR 153.50 – 1.25
JAN 1918 + 2                                MAY 154.70 – 1.25