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

Coffee Market Report

03 Mar 2016
The National Coffee Council in Costa Rica has reported that the countries coffee exports for the month of February were 21,089 bags or 17.1% higher than the same month last year, at a total of 144,446 bags. This improved performance does however follow a slow start to coffee exports for the present coffee year and has contributed to the countries cumulative coffee exports for the first five months of the present October 2015 to September 2016 coffee year to be 5.6% lower than the same period in the previous coffee year, at a total of 312,662 million bags.

The Ivory Coast has reported that the countries cumulative robusta coffee exports for the first four months of the present October 2015 to September 2016 coffee year were 117,583 bags or 10.06% lower than the same period in the previous coffee year, at a total of 1,051,767 bags. This more modest performance out of what has been estimated to have been an unchanged new crop of approximately 1.8 million bags is not seen to be related to a more modest crop, but more so to price resistant slower sales that come with the soft nature of the reference prices of the London market.

Quite predictably with the forecasts for a smaller conilon robusta crop for Brazil this year and internal market prices for conilon coffee stocks starting to surge, there is evidence of the start of a drawdown of the conilon robusta coffees being held within the certified stocks of the London market. These coffees mostly heading towards the North American market, which is friendly to the somewhat unique taste profile of these Brazil robusta coffees. With this demand for the conilon coffees within the London certified stocks on the part of the North American roasters, foreseen to increase in volume in the coming months.

Price resistance within the internal markets is common to most producers at present and coffee sales and exports are nevertheless steady from the majority of the producers of both arabica and robusta coffees, which indicates that while there is sufficient coffee supply, there is not any surplus supply to dictate competition between producers to find a market. This factor is further evident in the fact that with coffee exports mostly at premiums to tenderable parity to the New York and London markets that the certified stocks of these markets are shrinking and would further indicate that fundamentally these markets are undervalued and are very vulnerable to a significant rally, should the funds take steps to liquidate their present short selling sentiment within these markets. This would make one suspect that with the funds already short that the downside for the markets is limited and that on the medium to longer term; the markets might be due for some buoyancy and for perhaps as much as a 20% higher in value trading range due for the latter half of the year.

The May on May contracts arbitrage between the London and New York markets broadened yesterday, to register this at 52.46 usc/Lb., while this equates to a 45.40% 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 6,055 bags yesterday; to register these stocks at 1,533,661 bags. There was meanwhile a smaller in volume 320 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at zero bags.

The Certified robusta coffee stocks held against the London exchange are seen to have declined by 272,667 bags or 8.28% over the first two months of this year, to see these stocks registered at 3,020,333 bags on the 1st. March. While with price resistance continuing within the internal markets of the Asian and African robusta coffee producers and resulting in robusta coffee exports being generally priced well above tenderable parity, it is likely that these stocks alike those of the New York arabica coffee market, shall continue to steadily decline.

The commodity markets were mostly steady to buoyant for trade yesterday, with the overall macro commodity index showing buoyancy through the day. The Sugar, Cocoa, Coffee, Cotton, Copper, Orange Juice, Wheat, Gold and Silver markets had a day of buoyancy and the Oil and Corn markets were steady, while the Natural Gas market had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.36% higher; to see this Index registered at 370.87. The day starts with the U.S. Dollar steady in early trade and trading at 1.408 to Sterling and 1.086 to the Euro, while North Sea Oil is steady in early trade and is selling at 36.15 per barrel.

The London and New York markets started the day yesterday with modest buoyancy, but both markets soon moved back into modest negative territory and remained south of par into the afternoon trade. However as the afternoon progressed the markets started to attract some support and with limited volumes of producer selling over the markets, they moved back into positive territory and while the New York market came back off the highs of the day, the London market held on to most of its gains of the day. The London market ended the day on a positive note and with 93.3% of the gains of the day intact, while the New York market ended the day on a more modest positive note and with only 51.6% of the earlier gains of the day intact. This overall positive close is somewhat constructive and with the stronger Brazil Real now trading at 3.89 to the dollar and indicating slower sales out of Brazil, one might expect to see some follow through buoyancy due for early trade today against the prices set yesterday, as follows:

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

MAR 1358 + 16                                     MAR 113.35 + 0.85
MAY 1391 + 14                                     MAY 115.55 + 0.80
JUL 1420 + 14                                          JUL 117.40 + 0.70
SEP 1447 + 14                                          SEP 119.15 + 0.70
NOV 1469 + 14                                       DEC 121.25 + 0.60
JAN 1490 + 14                                       MAR 123.45 + 0.55
MAR 1509 + 13                                     MAY 124.85 + 0.45
MAY 1532 + 12                                       JUL 126.05 + 0.40
JUL 1552 + 12                                         SEP 127.15 + 0.40
SEP 1578 + 12                                        DEC 128.60 + 0.50