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

Coffee Market Report

04 Jul 2016
The latest Commitment of Traders report from the New York arabica coffee market has seen the Non Commercial Speculative sector of this market increase their net long position within the market by 7.54% during the week of trade leading up to Tuesday 28th. June; to register a net long position of 29,036 Lots on the day. This net long position which is the equivalent of 8,231,577 bags has most likely been since marginally increased, following the period of overall positive trade which has since followed.

The National Coffee Institute in Honduras have reported that the countries coffee exports for the month of June were 134,363 bags or 18.48% lower than the same month last year, at a total of 592,530 bags. This lower performance has contributed to the countries cumulative exports for the first nine months of the present October 2015 to September 2016 coffee year to be 3.3% lower than the same period in the previous coffee year, at a total of 4,368,000 bags.

This relatively sharp dip in coffee exports from Honduras the National Association of Honduran Coffee Exporters say is due to the increasing volumes of Honduras coffees that are being smuggled into neighbouring Guatemala and to a lesser extent, into Mexico. These incidences of smuggling are by nature impossible to accurately quantify and have historically been taking place, but it would seem that the volumes of smuggled coffees out of Honduras to countries where the same coffees can be shipped under the more positive price differentials that their brand name neighbouring origins can achieve are on a relatively sharp increase.

Following the evidence of the impact that these cross border exports are having upon the volumes of exports out of Honduras, the National Association of Honduran Coffee Exporters have also speculated that while the last coffee harvest had indicated that while the country had forecasted exports for the present coffee year of approximately 5.52 million bags and therefore close to 10% higher than the previous coffee year, that Honduras coffee exports might now only be around 5.14 to 5.21 million bags for the present coffee year. This volume would nevertheless marginally exceed the volumes of Honduras coffees that were shipped during the previous 2014/2015 coffee year and the lower forecast for the present, does not threaten medium term consumer market supply of fine washed arabica coffees.

The preliminary commodity export figures from Brazil for the month of June would indicate that the country exported 330,000 bags or 13.81% less coffee than the same month last year, at a total of 2.06 million bags. This did is however not unexpected as at this time last year the country was in the process of liquidating relatively large volumes of carryover coffee stocks that were built up during 2013, which are now mostly depleted. Furthermore, with this year’s new crop coffees still to start coming to the market and with the Brazil currency having firmed against the U.S. dollar, the short term selling a coffees is presently rather muted.

The International Coffee Organisation has reported that the global coffee exports for the month of May were 6.8% lower than the same month last year, at a total of 9.32 million bags. They do however note that despite this dip in exports, that the global coffee exports for the first eight months of present coffee year are nevertheless 1.6% higher than the same period in the previous coffee year, at a total of 75.95 million bags.

The September to September contracts arbitrage between the London and New York markets narrowed on Friday, to register this at 67.25 usc/Lb., while this equates to a 45.94% 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 1,575 on Friday; to register these stocks at 1,304,181 bags. There was meanwhile a similar in number 1,642 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 4,858 bags.

The commodity markets were mixed ahead of the U.S.A. Independence day long weekend on Friday, but with many markets gaining some support from a marginally softer U.S. dollar and with the overall macro commodity index showing some buoyancy for the day. The Natural Gas, Sugar, Cocoa, Coffee, Cotton, Copper, Orange Juice, Gold and Silver markets had a day of buoyancy and the Oil markets were near to steady for the day, while the Wheat, Corn and Soybean markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.91% higher; to see this Index registered at 436.89. The day starts with the U.S. dollar steady and trading at 1.328 to Sterling and 1.113 to the Euro, while North Sea Oil is showing a degree of buoyancy in early trade and trading at 48.50 per barrel.

The London market started the day on Friday with a degree of buoyancy, while the New York market had a near to steady start and with both markets maintaining this mixed stance into the afternoon trade. However as the afternoon progressed the New York market and with support coming from the positive nature of he macro commodity index, started to attract some support and to join the London market in positive territory and with both markets adding further value. However while the London market managed to shrug off some mid-afternoon negative pressure and show muscle through to the close, the New York market did come off its new found highs as the day progressed. The London market ended the day on a very positive note and with 93.3% of the earlier gains of the day intact, while the New York market ended the day on a more modest positive note and with only 31.9% of the earlier gains of the day intact. The New York market is closed for the day today for the Independence Day holidays and shall leave the London market to trade solo for the day and one might expect that with major players off the field of play that the London market might be due for only a modest corrective near to steady start for early trade today against the prices set on Friday, as follows:

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

JUL 1734 + 46                                        JUL 144.85 + 0.75
SEP 1745 + 28                                        SEP 146.40 + 0.75
NOV 1758 + 27                                      DEC 149.15 + 0.85
JAN 1767 + 27                                      MAR 151.65 + 0.90
MAR 1776 + 25                                    MAY 153.10 + 0.95
MAY 1789 + 25                                      JUL 154.40 + 1.05
JUL 1801 + 25                                        SEP 155.50 + 1.00
SEP 1814 + 25                                       DEC 157.20 + 0.95
DEC 1833 + 25                                     MAR 158.75 + 0.95
MAR 1829 + 25                                    MAY 159.50 + 0.95