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

Coffee Market Report

23 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 increase their net short sold position within the market by 37.52% over the week of trade leading up to Tuesday 16th. February; to register a net short sold position of 14,187 Lots. Meanwhile the longer term in nature Index Fund sector of this market increased their net long position within the market by 9.7%, to register a net long position of 33,254 Lots on the day.

Over the same week the Non Commercial Speculative sector of this market increased their net short sold position within the market by 36.29%, to register a net short position of 20,357 Lots. This net short sold position which is the equivalent of 5,771,119 bags has most likely been little once again reduced, following the period of mixed but with yesterday’s sharp rally overall positive 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 9.55% over the week of trade leading up to Tuesday 16th. February; to register a net short sold position of 20,111 Lots on the day. This net short sold position that is the equivalent of 3,351,833 bags has most likely been marginally increased, over the period of mixed but overall negative trade, which has since followed.

The Uganda Coffee Development Authority has reported that the countries coffee exports for the month of January was 24,244 bags or 7.82% higher than the same month last year, at a total of 334,393 bags. This improved performance has contributed to the countries cumulative exports for the first four months of the present October 2015 to September 2016 coffee year to be 164,599 bags or 16.72% higher than same period in the previous coffee year, at a total of 1,148,941 bags.

In terms of value however the value of the January coffee exports was US$ 7,589,582.00 or 19.12% lower than the same month in the previous year, at a total of US$ 32,101,652.00. Likewise the value of the Uganda coffee exports for the first four months of the present coffee year is US$ 15,991,728.00 or 12.34% lower than the same period in the previous coffee year, at a total of US$ 113,602,727.00.

This very much expected dip in value relative to volume being related to the relatively soft reference prices of the international coffee exchanges against which coffees are presently being sold, which is however being countered by the corresponding weaker Uganda shilling to bring stability to the farm gate prices for the farmers. But one must keep in mind that there is inflation and while the exchange rate does bring some degree of relief to the farmers, the advantage of this factor is limited and it must be starting to impact upon the profit margins for the Ugandan coffee farmers.

The May on May contracts arbitrage between the London and New York markets broadened yesterday, to register this at 56.28 usc/Lb., while this equates to a 46.67% 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 2,920 bags yesterday; to register these stocks at 1,561,234 bags. There was meanwhile a smaller in volume 1,280 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 5,689 bags.

The commodity markets and despite a firming U.S. dollar had a mixed but overall positive day’s trade yesterday and with the Oil and New York arabica Coffee markets taking the lead, the overall macro commodity index took a positive track for the day. The Oil, Natural Gas, Sugar, Cocoa, New York arabica Coffee, Copper, Corn and Soybean markets had a positive day’s trade and the London robusta Coffee market was steady, while the Cotton, Orange Juice, 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 0.32% higher; to see this Index registered at 367.15. The day starts with the U.S. Dollar steady in early trade and trading at 1.412 to Sterling and 1.104 to the Euro, while North Sea Oil is tending softer in early trade and is selling at 33.10 per barrel.

The London market started the day yesterday on a softer note, while the New York market took a modestly positive stance and with the markets maintaining this track into the afternoon trade. However as the afternoon progressed the New York market attracted more support and with a firming Brazil real and thin producer selling over the market it started to trigger buy stops and a resulting rally ensued within the market, while the London market followed suit but only so far as to recover its earlier US$ 17.00 per Mt. losses of the day. The London market continued to end the day on a steady note, while the New York market ended the day on a very positive note and with 90% of the earlier gains of the day intact. This mixed close but with the New York market looking technically positive is likely to encourage some producer selling restraint and some buoyancy for the London market, but with perhaps a cautious and hesitantly near to steady start for the New York market for early trade today against the prices set yesterday, as follows:

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

MAR 1380 – 4                                         MAR 119.85 + 4.10
MAY 1418 + 1                                         MAY 120.60 + 4.05
JUL 1447 + 5                                              JUL 122.30 + 3.90
SEP 1472 + 8                                              SEP 123.85 + 3.70
NOV 1493 + 10                                         DEC 125.55 + 3.35
JAN 1515 + 13                                         MAR 127.40 + 3.00
MAR 1535 + 13                                       MAY 128.50 + 2.80
MAY 1556 + 13                                         JUL 129.50 + 2.75
JUL 1576 + 13                                            SEP 130.45 + 2.70
SEP 1604 + 13                                           DEC 131.65 + 2.55