The latest Commitment of Traders report from the New York arabica coffee market has seen the shorter term in nature Managed Money fund increase their net long position by 22.71% within this market over the week of trade leading up to Tuesday 19th November 2023; to register a new long position at 39,942 Lots. The longer term in nature Index Fund sector of this market posted an increase to their net long position by 6.95% within the market, to register a new net long position of 65,280 Lots on the day.        

Over the same week, the Non-Commercial Speculative increase their net long position by 37.85% within the market over the week of trade leading to Tuesday 19th November 2023:  to register a new net long position of 23,804 lots, which is the equivalent of 6,748,329 bags. This net long position has most likely been marginally increased following the period of mixed but overall firmer trade that has since followed.

The Vietnam Coffee and Cocoa Association reported yesterday that the internal prices of coffee are forecast to continue to remain high next year, due to the severe supply shortage coming out of the October 2022 to September 2023 coffee year. The association have estimated that around 1,333,333 to 2,500,000 bags of contracted coffee remain short and are needing to be fulfilled from the current coffee year harvest.

The Vietnam Coffee and Cocoa Association have reported that the primarily Robusta coffee producing nation is likely to produce between 26.67 and 28.33 million bags during the current October 2023 to September 2024 coffee year. With exports from the region forecast to be somewhat lower than the previous 2022/23 year at a total of 23.33 million bags during the current October 2023 to September 2024 coffee year, with an increase in local demand and very limited carryover stocks from the 22/23 year.

The U.S. Department of Agriculture (USDA) Foreign Agricultural Services have reduced their forecast for global robusta coffee production lower by 5.01% from their previous estimate for the current October 2023 to September 2024 coffee year to reach 74.11 million bags, 3.31% lower than the previous year. This, due primarily to lower output in Vietnam which they say robusta coffee production will total 26.62 million bags or 11.94% lower than their previous estimate.

The USDA have likewise forecast that the current 2023/24 Brazil Conillon Robusta production is comparatively on par with the prior year, at an estimated 21.50 million bags. The developing 2024/25 Brazil Conillon robusta crop is in cherry expansion phase and the climatic concerns surrounding the growing regions in Espírito Santo as well as to the north in Bahia, where Conillon robusta production is concentrated, the evolution of reported excessive heat at the outset of the Brazilian summer, as well as below average rainfall recorded through mid-November, into December in these areas come to the fore. Unlike the more southerly arabica growing areas, the relatively new areas of Conillon production in Bahia do have access to irrigation, while the arrival of the rains and conducive weather through December, has seen most estimates for Conillon to remain steady for next year 2024/25 harvest to come. One might anticipate some attention to these next round of future crop estimates to be forthcoming in the first couple of months of the new year.

The prospects for the successful development of the Brazil Conillon robusta 2024/25 crop may be anticipated to continue to be a highlighted focus to the international coffee industry, and speculative participants alike, in tandem with the prevailing evidence out of Vietnam, now that the late rains have stopped, coffee deliveries are still relatively slow. Vietnam is due for another lower robusta production year in the October 2023 to September 2024 coffee year. This coming from a lower than anticipated Vietnam production in 2022/23 coffee year, with carryover stocks depleted in advance of the new crop that is now slowly coming to the fore.

Looking to alternative robusta producer countries, climatic disruption caused by a succession of La Nińa and now El Nińo weather phenomenon might not provide much in the way of interim supply alleviation to consumer markets, which have become more reliant on robusta over the past years inspired by the extraordinarily wide arbitrage and pandemic related and perhaps forced, sourcing flexibility. The third largest robusta producer country Indonesia’s, April 2023 to March 2024 coffee year is already estimated to be 8.40 million bags or 19.05% below that of the previous year. This figure as reported by USDA Foreign Agricultural Services, although there are a growing number of analyst reports that are revising the current year production figure to the lower. The country has since registered drier conditions through to the end of the calendar year, with reports from the local weather agency to indicate that prolonged hot and dry weather has already impacted two thirds of the island nation, to include Java, the northern areas of Kalimantan, and Sumatra. The latter region the primary robusta growing area, leading one to anticipate that while the onset of the monsoon season may have since provided a boost to soil moisture levels, the El Nińo induced weather patterns may have already negatively impacted the chances of a successful formation of the next Indonesia April 2024 to March 2025 robusta coffee crop, and may be too little too late, with well-respected international analysts already indicating the next Indonesia robusta 2024/25 crop year to come could well be another, lower production year.

The fourth largest robusta producer, Uganda, has experienced similar disruptive weather conditions, beginning the calendar year with drier than usual seasonal conditions, to flooding conditions and extended rainfall in the last quarter of the calendar year. There was a delay to coffee deliveries to kickstart the October 2023 to September 2024 export season due to rain delayed harvest and drying activities across the expansive areas of production. The export season has since picked up pace albeit that the first two months of the coffee year registered a slight decrease of 0.75%, at 895,226 bags. The cumulative production potential in this coffee year which traditionally has two harvest seasons, is for a robusta crop year in 2023/24 to be improved year on year, estimated to reach in the region of 5.80 million bags, according to the latest published estimate by USDA.

The fifth largest robusta producer, India has historically experienced an extended number of dry season days within El Nińo conditions, southern coffee growing states reportedly experiencing greater impact on arabica production. This country has registered a reduction in overall output of robusta coffee from 5 million bags in 2020/21 coffee year and this current October 2023 to September 2024 coffee year is thus far, anticipated to be maintained at a relatively steady 4.5 million bags.

The overall estimated international demand for robusta coffee that is traditionally allocated to soluble manufacture, has registered a marked increase over the past four years, the outset of 2020’s reported at around 72 million bags, surging by near to 10 million bags through to 2022/23 coffee year, and is foreseen to stabilise at around 80 million bags in the coming 2023/24 coffee year. The increased usage inspired to some extent by the affordability of robusta coffee, with an arbitrage between arabica and robusta markets that touched 60.15% in 2022. This, following a melting pot of influencing factors within the global coffee supply and demand environment over these years, to include the heightened prices of arabica coffee and futures market prices following the Brazil frost in 2021, the development of an arabica supply deficit, a lack of access to coffee inventory in consumer countries through the logistically challenging disruptions of pandemic years. The increase in global demand for robusta coffee has since been met with two deficit production years, and improved prices for producers has led to a drawdown of producer and consumer inventories. Consequently, met with a climatically induced delay to the start of the Vietnam robusta harvest, and a traditional increase in demand from the northern hemisphere consumer countries ahead of winter roasting needs.

The circumstances surrounding global arabica production has improved following the deficit year in production in 2021/22, and so too consumption demand, which is anticipated to register some degree of recovery back to pre-pandemic levels in 2024. Although the record low levels of arabica coffee stocks that are certified to the New York exchange continue to boost speculative confidence in what might appear to be an overall tighter supply of arabica coffee to consumer markets, there is potential for Colombia, Mexico, Africa, Asia and Central America arabica shipments to consumer markets to pick up pace into the New Year. Within a high priced robusta environment the pendulum may swing toward lower arabica in the more flexible roaster consumer blends, whereas the prevailing value to be had in New York might encourage larger clips of coffee to come to the certified warehouses of the exchange, to gradually build on the certified stocks of the exchange in the months ahead.

The latest development with the world’s major shipping lines rerouting their vessels via the Cape of Good Hope, instead of the more economical, shorter, but now considered too risky a route via the Suez Canal, is likely to have impact in both cost and lead-time in delivery of northbound cargo to consumer markets. There are compounding pressures to trade routes such as the Panama Canal, where inclement weather reportedly brought about by El Nińo drought conditions, has led to low water levels, while increased traffic could lead to further delays on the waterway that connects the Pacific and Atlantic Oceans. The waterway does not utilise seawater but is connected on both ends to the Gatun Lake, an artificial reservoir, thus freshwater flows into Gatun from the Chagres River. There have already been several announcements by shipping lines, relating to the need for route alteration, as well as the implementation of additional surcharges, bunker increases. The extent of shipments in lead time disruption, additional cost and reduced efficiency in lead times, may once again, call on the international coffee community’s resilience and flexibility. The extension of internal turnaround lead times where this is required and looking to shipping corridors that traditionally operate outside of the affected routes in the interim. The precautionary situation of altered routing is a controlled disruption which may once the extended time on the water is accommodated across the supply chain, may be a temporary bottleneck that is normalised in a relatively short time.

The Certified washed Arabica coffee stocks held against the New York exchange were seen to remain unchanged yesterday, to register these stocks at 247,912 bags, with 97.80% of these certified stocks being held in, Europe at a total of 242,461 bags and the remaining 2.20% being held in the USA at a total 5,451 Bags. Of this, a total 43,837 bags, or 17.68% of the coffees registered and stored in consumer country certified warehouses of the exchange, are Brazil washed arabica, and a further 66.34% of these certified coffees, originating from Honduras. There was meanwhile 1,375 bags increase to the number of bags pending grading to the exchange; to register 30,243 bags pending grading on the day.

The March 2024 to March 2024 contract arbitrage between the London and New York markets widened yesterday to register this at 65.67 Usc/Lb. This equates to 33.79% price discount for the London Robusta coffee.

It was a firmer day on the commodity markets yesterday, the leading in influence Oil markets were firmer on the day. The New York Arabica Coffee, Corn, Soybean, Wheat, Gold, Silver and Platinum markets ended the day on firmer note, while the Cocoa, Sugar and Palladium markets ended the day on a softer note. The day starts with the U.S. Dollar trading at 1.273 Sterling, at 1.104 the Euro and with the US Dollar buying 4.814 Brazil Real.

The New York market traded solo for a shortened day of trade yesterday and started the day on a modest firmer note, before attracting selling pressure early to see the market drop below par and trend softer. The market was seen to recover from the early lows during the mid-morning session. As the afternoon progressed, the New York market attracted some degree of buying support in mainly technical trade. The market recovered from the earlier losses of the day to trend back above par during the afternoon session. This saw the New York market continue on a firmer path during the late afternoon session. In relatively thin trade, resistance was met at the high on the day, and the market shed some of the earlier gains, to settle in positive territory, with more than half of the earlier gains of the day intact at the close.

The London market ended the day on Friday, on a negative note with 87.59% of the earlier losses of the day intact, while the New York market ended the day yesterday trading on a positive note with 59.62% of the earlier gains of the day intact. This firmer close for the New York market trading solo for the day, might indicate some degree of confidence, albeit in light volumes of trade and one might expect to see the markets due for a follow through steady start to early trade today, against the prices set yesterday in New York and on Friday in London, as follows:

LONDON ROBUSTA US$/MT                 NEW YORK USC/LB.
Close: 22/12/2023                                       Close: 26/12/2023

MAR   2837 – 127                                      MAR    194.35 + 1.55
MAY   2766 – 104                                      MAY    191.95 + 1.70
JUL     2704 – 87                                        JUL      192.00 + 1.80
SEP     2662 – 75                                        SEP      192.65 + 1.85
NOV   2636 – 76                                        DEC     193.55 + 2.00
JAN    2613 – 76                                        MAR    194.70 + 2.05
MAR  2602 – 76                                        MAY     195.35 + 2.05
MAY  2595 – 76                                        JUL       195.80 + 2.00