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

Coffee Market Report

22 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 increase their net short sold position within the market by 36.29% during the week of trade leading up to Tuesday 16th. February; to register a net short sold position of 20,357 Lots. This net short sold position which is the equivalent of 5,771,119 bags has most likely been little changed to perhaps marginally increased, following the period of mixed but overall mostly sideways trade, which has since followed.

The coffee markets remain devoid of striking fundamental news and with the evidence of significant robusta coffee stocks being held within Vietnam, an overall larger new Central American crop and prospects for a much larger new Brazil arabica coffee crop due for the second half of the year tending to impact upon market sentiment for the present. This aside from the soft nature of the overall macro commodity index, which is further contributing to the prevailing lacklustre nature of the coffee markets for the present.

All of these factors overshadow the prospects for an approximate 4 million bags dip in the combination of the forthcoming new Indonesia robusta coffee crop and the forthcoming new Colombian Mitaca crop, which are dwarfed by the forecasts for an approximate 7 million to 8 million bags increase in the overall new Brazil crop for this year. But one has to still focus on what has been forecasted to be a strong possibility for a new La Nina phenomenon to come into play during the second half of this year, which could possibly if it were to come about impact upon the prospects for yearend Colombian coffee production and likewise, coffee production in Indonesia for next year.

Thus while the coffee markets are presently within something of a doldrums and remaining within a soft trading range, there still remains the possibility for speculation towards longer term tightening coffee supply to force the terminal markets into a higher trading range for the second half of the year. But with the La Nina factor aside, one does not presently foresee any other supportive factors to the fore and with this La Nina still an uncertainty and not yet a strong enough probability to have confidence in, one can foresee little in the way of short to medium term excitement within the markets.

The May on May contracts arbitrage between the London and New York markets broadened on Friday, to register this at 52.28 usc/Lb., while this equates to a 44.86% 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 1,074 bags on Friday; to register these stocks at 1,564,154 bags. There was meanwhile a larger in volume 3,596 bags decline to the number of bags pending grading for this exchange; to register these pending grading stocks at 4,409 bags.

The commodity markets had a mixed and somewhat lacklustre day of trade on Friday, with the overall macro commodity index taking a modestly softer track for the day. The New York arabica Coffee, Copper and Gold markets had a day of modest buoyancy and the Cotton, Orange Juice, Wheat, Corn and Soybean markets were relatively steady for the day, while the Oil, Cocoa, Sugar, London robusta Coffee and Silver markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.89% lower; to see this Index registered at 365.97. The day starts with the U.S. Dollar showing a degree of buoyancy in early trade and trading at 1.428 to Sterling and 1.111 to the Euro, while North Sea Oil is showing buoyancy in early trade and is selling at 32.25 per barrel.

The London market started the day on Friday with modest buoyancy, while the New York market took a softer track for early trade and with both markets maintaining this mixed track either side of par into the afternoon trade. However as the afternoon progressed the New York market recovered and crawled its way back over par, but with the London market seemingly running out of steam and slipping back well south of par, but to recover some of its losses by the end of the day, while the New York market struggled to hold on to most of its gains. The London market ended the day on a soft note and with 57.9% of the earlier losses of the day intact, while the New York market ended the day on a modestly positive note, but with only 30% of the earlier gains of the day intact. This close does little to inspire and with the charts not indicating much in the way of reason for confidence, one might expect to see little better than a near to steady start for the markets for early trade today against the prices set on Friday, as follows:

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

MAR 1384 – 18                                       MAR 115.75 + 1.60
MAY 1417 – 11                                       MAY 116.55 + 0.45
JUL 1442 – 12                                            JUL 118.40 + 0.40
SEP 1464 – 9                                              SEP 120.15 + 0.35
NOV 1483 – 10                                         DEC 122.20 + 0.30
JAN 1502 – 10                                         MAR 124.40 + 0.25
MAR 1522 – 10                                       MAY 125.70 + 0.20
MAY 1543 – 10                                         JUL 126.75 + 0.05
JUL 1563 – 10                                           SEP 127.75 – 0.05
SEP 1591 – 10                                          DEC 129.10 – 0.15