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

Coffee Market Report

18 Mar 2016
The largest coffee cooperative in Brazil Cooxupe have reported yesterday that with a domestic coffee consumption of close to 21 million bags per annum and with coffee exports from Brazil close to 36 million bags per annum, that by the start of the new crop this year and albeit potentially a larger new crop, that the countries coffee stocks shall be mostly depleted by the start of the new crop. The report hinting that against the evidence of exports over the past year and with the domestic market demands, that the new crop could not really be seen to fuel a surplus Brazil coffee supply.

One might however comment that the high export figures over the past year were inflated by relatively high levels of exports of the somewhat unique in taste profile in terms of robusta coffees conilon coffee, which were exports related to advantageous price demand rather than consumer market demand or requirement for the conilon coffees. Thus in terms of consumer market demand for Brazil coffees this more likely related to mostly Brazil arabica coffees and with some small demand for conilon coffees from the North American market and therefore, the dedicated Brazil coffee demand would be something closer to 31 million bags per annum. Thus indicating that if one is to go with a new Brazil crop of around 55 million bags for this year, that there shall indeed be a small surplus supply of Brazil coffees due for the next October 2016 to September 2017 coffee year.

In terms of the development of the maturing new crop in Brazil and following the past four months of good rains for the main arabica coffee districts but overall very dry conditions for the main conilon robusta coffee districts in Espirito Santo, the weather is presently hot and dry for most districts. There is however a new front coming in and with the prospects for good rains for all the coffee districts and including Espirito Santo but too late in terms of the close to maturity conilon robusta coffee crop in this state, to change the perspective for a significantly smaller new conilon robusta crop.

Meanwhile in terms of the fortunes of the New York arabica coffee market the perspective of only a very modest surplus arabica coffee supply from the new Brazil crop as opposed to a potential dip in fine washed arabica coffee supply out of Colombia this year, is seemingly assisting to buoy speculative support for the market. This activity that has gained additional support from the weakening U.S. dollar and the steadily declining certified stocks of the New York market has lifted the New York market up into a something of a higher trading range this week, with the positive nature of the charts assisting to buoy the technical perspective of this market.

The May on May contracts arbitrage between the London and New York markets broadened yesterday, to register this at 66.37 usc/Lb., while this equates to a 50.07% 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 8,865 bags yesterday; to register these stocks at 1,445,818 bags. There was meanwhile a larger in volume 18,545 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 39,175 bags.

The commodity markets and with a softening of the U.S. dollar in play had another generally positive day yesterday, with the overall macro commodity index taking a follow through positive stance for the day. The Oil, Natural Gas, Sugar, Cocoa, Coffee, Cotton, Copper, Soybean, Gold and Silver markets had a positive day’s trade, while the Orange Juice, Wheat and Corn markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 1.69% higher; to see this Index registered at 394.20. The day starts with the softer U.S. Dollar showing steady and trading at 1.446 to Sterling and 1.131 to the Euro, while North Sea Oil is near to steady in early trade and is selling at 39.30 per barrel.

The London and New York markets started the day yesterday with immediate buoyancy and with both markets adding value into the afternoon trade, with the New York market further assisted by the positive nature of the overall macro commodity index and the softer U.S. dollar triggering fund buy stops to accelerate the gains, to take the market to five month highs in value. Following this spike in value for the New York market however the market apparently hit something of a ceiling and started to attract producer price fixation selling, to come of its highs and take something of an erratic sideways track for the rest of the day, while the London market maintained a relatively steady positive sideways track through the day. The London market ended the day on a positive note and with 75% of the earlier gains of the day intact, while the New York market ended the day on a likewise positive note and with only 59.8% of the earlier gains of the day intact. This overall positive close is somewhat constructive for sentiment but following the gains of the day of high volume trade yesterday one might expect a slower and with perhaps some price fixation and profit taking activity coming into play, to influence a steady to softer start for early trade today against the prices set yesterday, as follows:

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

MAR 1428 + 33                                        MAR 132.00 + 4.60
MAY 1459 + 33                                        MAY 132.55 + 3.50
JUL 1487 + 31                                             JUL 134.25 + 3.50
SEP 1512 + 30                                             SEP 135.65 + 3.40
NOV 1533 + 30                                          DEC 137.05 + 3.15
JAN 1552 + 30                                          MAR 138.35 + 2.75
MAR 1575 + 31                                        MAY 139.50 + 2.75
MAY 1597 + 31                                          JUL 140.30 + 2.85
JUL 1621 + 31                                            SEP 140.80 + 2.95
SEP 1644 + 31                                           DEC 142.30 + 3.10