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

Coffee Market Report

16 May 2016
The latest Commitment of Traders report from the New York arabica coffee market has seen the Non Commercial Speculative sector of this market decrease their net short position within the market by 77.25% during the week of trade leading up to Tuesday 10th. May; to register a net short sold position of 2,723 Lots. This net short sold position which is the equivalent of 771,958 bags has most likely been since reduced to perhaps once again moved into a modest net long position, following the period of mixed but mostly positive trade, which has since followed.

The Brazilian analysts Safras e Mercado have announced on Friday that as at the beginning of last week that approximately 7% of the new Brazil coffee crop that they forecast to be 56.4 million bags had been harvested, with the dry weather affected new conilon robusta coming in relatively slowly, but with the new arabica coffee crop presently approximately four weeks ahead of normal. They do note however that while the past couple of weeks the weather over the main coffee districts has been mostly dry and conducive to an orderly harvest, that there is a new cold front due to enter the south east of Brazil, which shall bring with it scattered rain showers and some interruption to the harvest.

The Customs Department of Vietnam have reported that the countries coffee exports of mostly robusta coffees for the month of April were well in excess of the earlier trade forecasts, with coffee exports for the month recorded at 3.1 million bags. This impressive volume they note has resulted in the countries coffee exports for the first seven months of the present October 2015 to September 2016 coffee year to be 30.6% higher than the same period in the previous coffee year, in excess of 16.6 million bags.

Vietnam did however have record carryover stocks into the last Vietnam harvest that would have resulted in a coffee availability for this coffee year of approximately 32 million to 34 million bags of coffee, from which one could deduct an approximate 1.5 million bags of domestic consumption and the requirement to have carryover stocks at the end of the coffee year of at least 3 million bags. Thus in terms of coffee stocks that the country still has stocks of in excess of 11 million bags available and perhaps as much as 13 million bags, to support steady coffee exports for the last five months of the present coffee year.

These stocks while at face value look to be more than sufficient to satisfy consumer market demand are selling in competition to lower new Brazil conilon robusta coffee supply and to lower Indonesian robusta coffee supply during the second half of this year and therefore, the significant volumes of unsold Vietnam robusta coffee stocks at hand, are not seen to be reason to inspire selling aggression from Vietnam. Rather that the apparent lack of competition provides some degree of confidence for the farmers and internal traders in Vietnam, to continue with their price resistant stance towards the countries exporters and shall see Vietnam robusta coffees continue to come to the consumer markets at premium prices to the reference prices of the London market.

The July on July contracts arbitrage between the London and New York markets was steady on Friday, to register this at 53.90 usc/Lb., while this equates to a 41.43% price discount for the London robusta coffee market. This arbitrage remaining relatively attractive to roasters in comparison to arabica coffee prices, continues to inspire support for the robusta coffee sector of the industry.

The Certified washed Arabica coffee stocks held against the New York exchange were seen to decrease by 1,410 bags on Friday; to register these stocks at 1,369,877 bags. There was meanwhile a smaller in volume 960 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 3,220 bags.

The commodity markets were relatively lacklustre in nature on Friday, but with some positive news coming to the fore late in the day, with the news of improve retail sales data in the U.S.A. But with some renewed muscle for the U.S. dollar, the overall macro commodity index took a slight dip ahead of the weekend and isperhaps due to remain under some pressure, following the news of further declines in the Chinese growth figures. The Wheat, Corn, Gold and Silver markets had a day of modest buoyancy and the Coffee and Copper markets were steady, while the Oil, Natural Gas, Sugar, Cocoa, Cotton, Orange Juice and Soybean markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.38% lower; to see this Index registered at 408.98. The day starts with a degree of buoyancy for the U.S. Dollar which is trading at 1.436 to Sterling and 1.131 to the Euro, while North Sea Oil is showing a degree of buoyancy in early trade and is selling at 47.60 per barrel.

The London and New York markets started the day on Friday on a softer note and remained on something of a back foot into the afternoon trade, with the negative nature of the overall macro commodity index assisting to dampen spirits within the New York market. As the afternoon progressed there were a couple of modest recoveries for the London market but these were short term and both markets spent most of the afternoon within negative territory, but with the markets bouncing off their lows and taking a positive track in late trade and to end the day on a hesitantly positive note. The London market ended the day on the positive side of steady and with 50% of the modest gains of the day intact, while the New York market ended the day on a steady note and with only 12.5% of the earlier gains of the day intact. This close and with the markets showing the ability to cling on to the past weeks positive stance is perhaps somewhat constructive, but with many of the European consumer markets on their Whit Monday Pentecost long weekend holiday today, one might expect to see little better than a near to steady start for early trade today against the prices set on Monday, as follows:

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

MAY 1651 + 2                                     MAY 128.80 + 0.60
JUL 1680 + 2                                          JUL 130.10 + 0.05
SEP 1691 + 1                                          SEP 131.95 + 0.05
NOV 1704 + 2                                       DEC 134.55 + 0.20
JAN 1716 + 2                                       MAR 137.25 + 0.25
MAR 1730 + 3                                     MAY 138.80 + 0.30
MAY 1745 + 3                                       JUL 140.05 + 0.30
JUL 1760 + 3                                          SEP 141.15 + 0.30
SEP 1774 + 3                                         DEC 142.85 + 0.25
DEC 1793 + 3                                       MAR 144.35 + 0.15