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

Coffee Market Report

04 Jan 2016
The 2015 year has ended with the coffee markets joining the majority of commodity markets on a back foot and while the overall Reuters Equal Weight Continuous Commodity Index has ended the year 15.18% lower, the coffee markets have suffered further. In this respect and despite the positive correction on New Year’s eve the second month contract within the New York washed arabica coffee market has ended the year 23.92% lower, while second month contract within the London robusta coffee market has ended the year 20.15% lower.

This reversal within the coffee markets has however been countered to a degree and with internal market inflation aside within many leading markets, but the renewed muscle experienced by the U.S. dollar. In this respect and in terms of the larger producers, the Brazil Real declined by 49.02% and the Colombian Peso declined by 33.46% to the U.S. dollar through the year, to add value to their internal market coffee prices. However the dollar has not been as supportive for other leading producers such as Vietnam who have only seen their Dong decline by 5.19%, the Indonesian Rupiah decline by 11.31% and the Honduras Lempira decline by 6.41% to the U.S. dollar during the year, to see these latter producers in terms of internal market coffee prices suffer along with the negative fortunes of the international coffee prices.

With the month of December passed the government trade data from Sumatra the leading coffee producing island within Indonesia have reported that the islands robusta coffee exports for the month were 160,451 bags or 44.42% lower than the same month last year, at a total of 200,772 bags. This dip in exports has contributed to the islands cumulative robusta coffee exports for the first three months of the present October 2015 to September 2016 coffee year to be 210,861 bags or 19.4% lower than the same period in the previous coffee year, at a total of 875,901 bags.

This dip in exports is more related to the prevailing price resistance to the relatively soft nature of the reference prices of the London robusta coffee market, than it is to any shortage of robusta coffees within the island for the present. However with the latest El Nino in play and likely to carry on through to the early in the second quarter of this year and ahead of the start of the harvest of the next new crop, one might expect that there might well be a dip in production due for Sumatra. Thus following the impressive recovery which saw Sumatra register a 1,106,841 bags or 30.84% increase in robusta coffee exports for the just completed October 2014 to September 2015 coffee year to total 4,696,081 bags, one might expect to see an excess of a 2 million bags dip in Sumatran robusta coffee exports due by the end of the present October 2015 to September 2016 coffee year.

This longer term potential for more modest robusta coffee exports from Sumatra during the second and third quarters of the coming year are however not a matter of concern, as it should be more than countered by the significant carryover stocks of robusta coffees within Vietnam. These stock due to join a potentially larger new crop of in excess of 28 million bags in Vietnam and a crop that should include close to 27 million bags of robusta coffees, which even with an approximate 2.5 million bags per annum domestic consumption, shall ensure good robusta coffee supply to the consumer markets for the foreseeable future.

The March on March contracts arbitrage between the markets broadened on Thursday, to register this at 57.30 usc/Lb., while this equates to a 45.22% 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 93 bags on Thursday; to register these stocks at 1,727,703 bags. There was meanwhile a larger in volume 3,896 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 38,362 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 on Thursday, but with the Oil, Natural Gas and New York arabica Coffee prices bucking the lacklustre nature of the pre New Year holiday markets and the firming U.S. dollar, to end the last day of the year with relatively sharp positive corrections. These markets contributing to the overall macro commodity index taking a positive track for the day, to assist to bring forth a degree of confidence, so as to limit losses within the softer markets. The Oil, Natural Gas, Sugar, Coffee, Orange Juice and Wheat markets had a day of buoyancy and with the Gold and Platinum markets remaining steady, while the Cocoa, Cotton, Copper, 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 0.61% higher to see this Index registered at 379.31. The day starts with the U.S. Dollar taking a steady track in early trade and trading at 1.474 to Sterling and 1.089 to the Euro, while North Sea Oil is showing buoyancy in early trade and is selling at 38.15 per barrel.

The London market and New York markets started the day on Thursday and ahead of the New Year holiday with thin and lacklustre trade and with both markets posting some modest buoyancy, which was carried through to the afternoon trade. There was however with the Americans entering the field of play some further support coming to the fore for the New York market, which started to trigger buy stops and to accelerate the gains, which seemingly buoyed spirits within the London market and to see the London market adding more value. The markets continued on their positive track for the rest of the day, with the London market closing early for the holidays and ahead of the further gains within the New York market, while the New York market carried on solo on an upside track towards a regular closing time. The London market ended the day on a positive note and with 88.2% of the gains of the day intact, while the New York market ended the day on a very positive note and with 96.8% of the earlier gains of the day intact. This positive close and while more technical than fundamental in nature, might be seen to be modestly supportive for sentiment and could perhaps fuel a follow through buoyancy for the London market and a near to steady start for the New York market for early trade today, against the prices set on Thursday, as follows:

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

JAN 1491 + 15                                       MAR 126.70 + 3.05
MAR 1530 + 15                                     MAY 128.80 + 3.05
MAY 1557 + 16                                       JUL 130.75 + 3.05
JUL 1583 + 16                                         SEP 132.55 + 3.10
SEP 1605 + 17                                        DEC 135.05 + 3.10
NOV 1627 + 17                                     MAR 137.30 + 3.00
JAN 1644 + 17                                      MAY 138.85 + 3.05
MAR 1664 + 17                                      JUL 140.40 + 3.05
MAY 1687 + 17                                      SEP 141.85 + 3.05
JUL 1713 + 17                                        DEC 143.45 + 3.10