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

Coffee Market Report

31 Dec 2015
The year is ending with the coffee fundamentals not doing anything to support market sentiment, but in the meantime the prevailing El Nino phenomenon within the Pacific Ocean is proving to be the strongest since the devastating El Nino of 1998. However so far, the negative effects of this El Nino has been very evident over parts of Europe and North America and likewise in parts of Africa, but has yet to bring forth any significant scare stories from the main coffee producing nations.

One might however suspect that is something of the quiet before the storm and that the coming weeks shall most definitely in terms of coffee, bring to the market some voices of concern over the effects that the dry weather shall have upon coffee production within Colombia, Peru and Indonesia. Where these countries have to the fore their new mid-year Mitaca crop in Colombia, the start of the new crop harvest in Peru in April and the start to the new robusta coffee crop in Indonesia in March. All of these crops requiring good rains ahead of the crops, so as to assist with the maturity of the new crop cherries. Thus one might suggest that in terms of fundamentals, that there shall be prospects for some degree of support for market sentiment during the first quarter of the coming year.

In the meantime within Indonesia where coffee yields from the mostly small scale farmers who contribute to the countries coffee production are mostly half of their potential, there are members of the industry who are lobbying their government to step in and do more to assist the farmers improve their yields. Likewise, to encourage more farmers to enter the industry, so as to both fuel the countries steadily growing domestic coffee industry and to increase the export potential of the country. In this respect the country has the example of the successes of Vietnam over the past twenty years to use as an example as to what can be done in the field and while one might not expect to see any immediate change to production levels in Indonesia, there are prospects for the country to improve over the coming years and add to the steadily growing Asian market share of world coffee supply, with Asia already contributing to something in the order of a third of world coffee supply.

The March on March contracts arbitrage between the markets broadened yesterday, to register this at 54.93 usc/Lb., while this equates to a 44.42% 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 6,136 bags yesterday; to register these stocks at 1,727,796 bags. There was meanwhile a smaller in volume 3,530 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 42,258 bags.

The Certified Robusta coffee stocks held against the London market were seen to decline by 833 bags on Wednesday 23rd. December; to see these stocks registered at 3,300,667 bags.

The commodity markets were mixed in trade yesterday, following the exuberance on Tuesday and with the Oil markets taking a relatively sharp reversal, to see the overall macro commodity index taking a downside track for the day. The Sugar, Cocoa, New York arabica Coffee, Copper, Soybean and Platinum markets had a day of buoyancy and the London robusta Coffee and Cotton markets were steady, while the Oil, Natural Gas, Orange Juice, Wheat, Corn, 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 0.93% lower to see this Index registered at 377.00. The day starts with the U.S. Dollar taking a steady track in early trade and trading at 1.482 to Sterling and 1.093 to the Euro, while North Sea Oil is near to steady in early trade and is selling at 35.55 per barrel.

The London market started the day yesterday with follow through modest losses, but soon recovered to pay, when the New York market opened with follow through buoyancy. This was however short lived and the New York market slipped back to par and with both markets taking a sideways track and around par, into the afternoon trade. However as the afternoon progressed and with some supportive sentiment coming with the weakening Brazil Real that dipped once again below 4 to the dollar and ending the day at close to 3.96 to the dollar, the New York market attracted further short covering support and with buy stops being triggered to accentuate the gains, with the London market briefly following suit into positive territory. The London market continued to shed its gains and end the day on a near to steady note, having recovered 80% of the earlier losses of the day, while the New York market ended the day on a positive note and with 95.7% of the gains of the day intact. The London market is due for an early close today ahead of the New Year celebrations, while the New York market shall continue to trade solo for the rest of what shall be a normal day’s trade, with perhaps the positive nature of the close within the New York market due to inspire a steady start for early trade today against the prices set yesterday, as follows:

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

JAN 1476 – 1                                           MAR 123.65 + 2.20
MAR 1515 – 2                                         MAY 125.75 + 2.15
MAY 1541 – 1                                           JUL 127.70 + 2.10
JUL 1567 – 1                                             SEP 129.45 + 2.05
SEP 1588 – 3                                            DEC 131.95 + 1.90
NOV 1610 – 3                                          MAR 134.30 + 1.80
JAN 1627 – 3                                           MAY 135.80 + 1.75
MAR 1647 – 3                                           JUL 137.35 + 1.80
MAY 1670 – 3                                           SEP 138.80 + 1.95
JUL 1696 – 3                                             DEC 140.35 + 1.75