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

Coffee Market Report

15 Feb 2016
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 20.01% during the week of trade leading up to Tuesday 9th. February; to register a net short sold position of 14,936 Lots. This net short sold position which is the equivalent of 4,234,290 bags has most likely been little changed to perhaps marginally reduced, following the period of mixed but overall mostly sideways trade, which has since followed.

The Coffee Exporters Association of Brazil have reported that the countries green coffee exports for the month of January were 380,000 bags or 13.38% lower than the same month last year, at a total of 2,460,000 bags. Added to this were the exports for the month of value added soluble coffees and calculated in terms of their green coffee equivalent, which were 30,535 bags or 14.07% higher than the same month last year, at a total of 247,518 bags.

Therefore the overall January coffee exports from Brazil are seen to have been 349,465 bags or 11.43% lower than the same month last year, at a total of 2,707,518 bags. This dip in the January coffee exports from Brazil does not however detract from the fact that over the twelve months form February 2015 to January 2016 that Brazil has exported a very impressive 32.98 million bags of green coffee and with the value added soluble coffees calculated in terms of their green coffee equivalent included, an extremely impressive 36.59 million bags of coffee.

Thus with the Brazil domestic market taking in excess of 20 million bags per annum, an overall coffee drawdown of approximately 56.6 million bags over the past twelve months, which is with the fact that this is against crops of approximately 49.5 million bags in 2014 and 48.5 million bags in 2015, a good indication as to how much the Brazil coffee stocks have been declining over the past couple of year. Thus dictating the need this year for a new Brazil crop of in excess of 57 million bags, if there is to be continuity of Brazil coffee supply to the consumer markets.

One has to however to keep in mind that this surge in Brazil coffee exports included in excess of 3 million bags of Brazil conilon robusta coffee exports that were not related to traditional consumer market demand for this quality of coffee, but more so to the advantageous export sales of these coffees that assisted to fill the gap that was created by the price resistance and muted supply of robusta coffees from Vietnam. Thus one might with the evidence of these past twelve months of Brazil coffee exports rather look to a figure of around 53.5 million bags to 54 million bags of dedicated Brazil coffee demand, as being the critical number that shall need to be covered by this year’s new Brazil crop. But one must also consider that there is now a need for Brazil to start rebuilding its stocks that have been much depleted and therefore, unless there is a new crop of in excess of 57 million bags, that there has to be some degree of tightening supply and internal market price resistance due from Brazil for the second half of this year.

The May on May contracts arbitrage between the London and New York markets broadened on Friday, to register this at 52.14 usc/Lb., while this equates to a 44.37% price discount for the London robusta coffee market. This arbitrage remaining relatively attractive to roasters in comparison to arabica coffee prices, with the good discount most likely due to remain in place for the foreseeable future, in line with steady robusta shipments out of Vietnam.

The Certified washed Arabica coffee stocks held against the New York exchange were seen to decrease by 2,162 bags on Friday; to register these stocks at 1,568,944 bags. There was meanwhile a smaller in volume 1,483 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 8,005 bags.

The commodity markets with the Oil markets taking the lead were buoyed on Friday and with the overall macro commodity index ending the week on a positive track, to assist to inspire a degree of confidence within many markets. The Oil, Sugar, Cocoa, Coffee and Copper markets had a day of buoyancy and the Silver market was steady, while the Gold market had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 1.22% higher; to see this Index registered at 367.56. The day starts with the U.S. Dollar steady in early trade and trading at 1.453 to Sterling and 1.122 to the Euro, while North Sea Oil is steady in early trade and is selling at 32.30 per barrel.

The London and New York markets started the day on Friday with buoyancy and following the general upturn in the overall macro commodity index, the markets started to attract short covering and with buy stops being triggered, to accentuate the gains for the New York market and the London market likewise showing further buoyancy for the day. The London market continued to end the day on its highs, but with the New York market coming off in late in the day’s trade and ahead of its long weekend holiday. The London market continued to end the day on a very positive note and with 97.1% of the earlier gains of the day intact, while the New York market ended the day on a positive note and with 64.9% of the earlier gains of the day intact. This close did not however include much participation on the part of the physical coffee trade and especially so for the London market, which had lacked any activity out of Vietnam last week, with their Tet New Year holiday in play. The New York market is closed today for the Presidents Day holiday and thus one might foresee something of a hesitant and cautious start due for trade today against the prices set on Friday, as follows:

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

MAR 1419 + 37                                     MAR 115.55 + 2.55
MAY 1441 + 33                                    MAY 117.50 + 2.50
JUL 1468 + 31                                         JUL 119.35 + 2.40
SEP 1492 + 30                                         SEP 121.05 + 2.25
NOV 1512 + 28                                      DEC 123.10 + 2.05
JAN 1531 + 26                                      MAR 125.20 + 1.85
MAR 1551 + 26                                    MAY 126.40 + 1.70
MAY 1571 + 23                                      JUL 127.50 + 1.60
JUL 1589 + 20                                        SEP 128.65 + 1.60
SEP 1616 + 20                                        DEC 129.95 + 1.45