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

Coffee Market Report

06 Apr 2016
The coffee markets were dominated by the follow through fund liquidation of their recently established long position into the volatile New York arabica coffee market, which has resulted in a sharp reversal in the fortunes of this market since the Easter break. But with the uncertainty of the potential for the presently forecasted significantly larger new Brazil arabica coffee crop, one might question how far south the funds will be prepared to sell the New York market south.

There is no question that the new Brazil arabica coffee crop following a wet summer shall be significantly larger, but there are many who question some of the more ambitious numbers that have indicated a significantly large surplus of Brazil arabica coffee from this new crop. While there is reason to speculate that even with a surplus arabica coffee production due from the new Brazil crop, that with carryover stocks that have fuelled Brazil arabica coffee supply over the past two deficit arabica coffee crops having been mostly liquidated, that farmers might not be aggressive sellers of the new crop coffees during the second half of this year.

There are also forecasts that with the new Colombian Mitaca crop that is soon due to start being harvested being possibly as much as 1.2 million bags lower, due to the El Nino phenomenon inspired dry weather for the past six months. The reality of this will of course only become evident by the third quarter of this year, but it does remain a factor that could well impact rather dramatically upon sentiment within the New York market, should it become reality.

For the present however and following the pre-Easter bullish nature of the coffee markets and with the follow on sell off, the consumer industry buyers are seen to be sitting back and awaiting new lows and with the resulting slow buying interest for all but the very necessary fill in stocks. In the meantime the majority of the producers are still showing price resistance and resisting the dictates of the negative nature of the coffee terminal markets, which is not attracting much in the way of buying interest from the international trade. This is resulting in a lacklustre physical coffee market for the present, with most players on both the producer and consumer sides of the market somewhat side lined and leaving market direction in the hands of the speculative and fund sectors of the market. But perhaps a physical coffee market presently drifting in the doldrums could be seen to be somewhat supportive of the markets in the second half of this year, rather than a negative factor.

The July on July contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 55.46 usc/Lb., while this equates to a 45.07% 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 5,249 bags yesterday; to register these stocks at 1,414,117 bags. There was meanwhile a smaller in volume 2,402 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 23,159 bags.

The commodity markets have to absorb bouts of disappointing news that comes with the repetitive reports of slowing growth in China, disappointing economic figures from Japan and forecasts for damp economic prospects for Europe. Followed by yesterday’s report from the International Monetary Fund that the world economy is losing momentum and with the overall commodity index tending to reflect this yesterday, as if continued to drift lower for the day. The Cocoa, Corn, Gold and Silver markets nevertheless had a day of modest buoyancy and the Sugar market was steady for the day, while the Oil, Natural Gas, Coffee, Cotton, Copper, Orange Juice, Wheat and Soybean markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.27% lower; to see this Index registered at 377.58. The day starts with a degree of early buoyancy for the U.S. Dollar which is trading at 1.414 to Sterling and 1.136 to the Euro, while North Sea Oil is showing a degree of buoyancy in early trade and is selling at 36.75 per barrel.

The London and New York markets started the day yesterday on a softer note and with both markets softening further into the afternoon trade, but with a short lived modest bounce encountered within both markets, before the markets once again returned to their downside path. The London market ended the day on a soft note and with 64% of the earlier losses of the day intact, while the New York market ended the day on a likewise soft note and with 84.4% of the earlier losses of the day intact. This close supports a negative technical picture and negative charts which does not assist to inspire much in the way of confidence for the present, which is likely to fuel another steady to soft start for early trade today against the prices set yesterday, as follows:

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

MAY 1457 – 17                                     MAY 120.90 – 1.90
JUL 1490 – 16                                          JUL 123.05 – 1.90
SEP 1513 – 15                                          SEP 124.85 – 1.90
NOV 1530 – 14                                       DEC 126.90 – 1.80
JAN 1546 – 13                                       MAR 128.80 – 1.75
MAR 1565 – 11                                     MAY 130.50 – 1.55
MAY 1588 – 10                                       JUL 131.75 – 1.45
JUL 1611 – 10                                          SEP 132.60 – 1.35
SEP 1631 – 10                                         DEC 133.85 – 1.25
DEC 1651 – 10                                       MAR 135.30 – 1.25