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

Coffee Market Report

16 Feb 2016
The latest Commitment of Traders report from the New York arabica coffee market has seen the shorter term in nature Managed Money fund sector of this market decrease their net short sold position within the market by 23.86% over the week of trade leading up to Tuesday 9th. February; to register a net short sold position of 10,316 Lots. Meanwhile the longer term in nature Index Fund sector of this market decreased their net long position within the market by 1.64%, to register a net long position of 30,314 Lots on the day.

Over the same week the Non Commercial Speculative sector of this market decreased their net short sold position within the market by 20.01%, to register a net short 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, following the period of mixed but overall mostly sideways trade which has since followed and likewise, that of the Managed Money fund sector of the market.

The latest Commitment of Traders report from the London robusta coffee market has seen the Speculative sector of this market decrease their net short sold position within the market by 15.45% over the week of trade leading up to Tuesday 9th. February; to register a net short sold position of 22,235 Lots on the day. This net short sold position that is the equivalent of 3,705,833 bags has most likely been further reduced, over the period of mixed but overall more positive trade, which has since followed.

The world’s largest coffee cooperative Cooxupe in Brazil have forecasted that following nearly four months of good rains that the new arabica coffee crop is looking good and due to be a near record crop, but even more beneficial is that the rains are assisting to bring forth good overall cherry size. This they say shall both add to the increased weight of the crop and to once again increase significantly the percentage of bold bean Screen 17 plus coffee from the crop, which should see the popular within the consumer market bolder bean coffees once again become relatively freely available for shipment from August onwards.

The do however within the report make the point that following two years of relatively modest deficit crops that their coffee stocks are dwindling and that this larger new crop shall be much needed, to both fulfil steady supply for the coming October 2016 to September 2017 coffee year and to assist to rebuild reserve stocks. This report, tending to indicate that even with a larger new crop that the rebuilding of stocks factor shall tend to limit selling aggression for the second half of this year.

The Vietnam Coffee and Cocoa Association have cited the prevailing El Nino as reason to forecast a severe drought for the main robusta coffee districts in Vietnam for this year, which shall impact negatively upon the prospects for the next new crop that shall be harvested over the last quarter of the year. But one must comment that with weather forecasts generally indicating that the El Nino phenomenon is on the wane and shall dissipate by the second quarter of this year and with the Vietnam rain season that falls between April and October being post the El Nino, that this forecast has to been more market manipulative in nature, than being a factor of any real concern. Thus it is unlikely that one shall see the report having much impact upon market sentiment within the related London robusta coffee market, where focus remains upon the significant unsold stocks of robusta coffee within Vietnam that follows record carryover stocks into the recently completed new crop and furthermore, a larger new crop.

The May on May contracts arbitrage between the London and New York markets broadened yesterday, to register this at 52.50 usc/Lb., while this equates to a 44.68% 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.

Many of the commodity markets with the Presidents Day long weekend in the U.S.A. were closed yesterday, to provide only limited indications of direction for the day yesterday. There has to be some concern however with the news that the German Central Bank or Bundesbank have reduced their forecasted European consumer price index growth for 2016 from 1.1% to 0.25% and by nature, indicating slack demand for the year. The Oil, Sugar, and Copper markets had a day of buoyancy, while the Natural Gas, Cocoa, London robusta Coffee, Gold and Silver markets had a softer day. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets was 1.22% higher following Friday’s trade; to see this Index registered at 367.56. The day starts with the U.S. Dollar showing buoyancy in early trade and trading at 1.442 to Sterling and 1.115 to the Euro, while North Sea Oil is showing buoyancy in early trade and is selling at 33.70 per barrel.

The New York market was closed yesterday to leave the London market to trade solo for the day and to start the day with predictable slow and lacklustre softer trade, which remained the track for most of the day’s trade. There was however a brief spell of recovery towards par during the afternoon but this was not sustained and the market drifted back, to set a modestly softer close for the day and with 80% of the earlier losses of the day intact. This close provides little indication of direction and one might expect little better than a hesitantly near to steady start for early trade today against the prices set in New York on Friday and yesterday in London, as follows:

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

MAR 1410 – 9                                         MAR 115.55 + 2.55
MAY 1433 – 8                                         MAY 117.50 + 2.50
JUL 1461 – 7                                             JUL 119.35 + 2.40
SEP 1485 – 7                                             SEP 121.05 + 2.25
NOV 1506 – 6                                           DEC 123.10 + 2.05
JAN 1525 – 6                                           MAR 125.20 + 1.85
MAR 1545 – 6                                         MAY 126.40 + 1.70
MAY 1565 – 6                                           JUL 127.50 + 1.60
JUL 1583 – 6                                             SEP 128.65 + 1.60
SEP 1610 – 6                                             DEC 129.95 + 1.45