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

Coffee Market Report

06 Jul 2016
The latest estimates by traders and exporters in Ho Chi Minh City in Vietnam, have estimated that the country shall continue on its relatively high pace of exports during the month of July, with the estimates for coffee exports of mainly robusta coffees from the month, ranging between 2.42 million and 2.67 million bags. If this volume is to prove to be fact by the end of the month, it would mean that Vietnam would have exported approximately 24.5 million bags of mostly robusta coffees over the first ten months of the present October 2015 to September 2016 coffee year.

This figure and with a domestic market demand of approximately 1.7 million bags per annum, would equate to a draw down in coffee stocks of close to 26 million bags so far this coffee year. Thus if one were to estimate exports of at least 4 million bags of coffee over the last two months of the present coffee year, it would result in an approximate 30.2 million bags drawdown of the coffee stocks during the present coffee year and therefore depending on whose 2015 crop figure one is to believe in a liquidation of approximately 1 million bags to 3 million bags of the carryover stocks from the previous 2014 crop.

These carryover stocks into the last quarter of 2015 new crop harvest in Vietnam had been estimated and anything between 5 million and 8 million bags and thus if one is to presume that the July export estimates are close to reality and so too that exports shall average at close to 2 million bags per month over August and September, the carryover stocks into the next 2016 new crop that starts in October would be something in the order of 4 million to 5 million bags. This would be still be a respectable number, but with forecasts that the new crop shall be a more modest number of between million to 26 million to 27 million bags and if Vietnam is to maintain its export volumes for the rest of the year and thereon for the first half of the coming year, it will result in a tightening supply of Vietnam robusta coffees for the coming October 2016 to September 2017 coffee year. This without any prospects for a recovery in robusta coffee supply from Brazil and Indonesia until at least June next year and this is still vulnerable to weather conditions, it will result in robusta coffee supply into the consumer markets start to tighten in the coming year and shall most likely, prove to be a somewhat supportive factor for the London market.

The Coffee Board of India has reported that the country’s coffee cumulative coffee exports for the first nine months of the present October 2015 to September 2016 coffee year were 723,730 bags or 18.82% higher than the same period in the previous coffee year, at a total of 4,568,235 bags. But this significantly improved volume export performance which not only includes the exports of Indian produced coffee but also re-exports of processed imported coffees was only 0.3% higher in value than that of the value of the exports over the same period in the previous coffee year, at a total of 633.9 million U.S. dollars. This latter value factor one might suspect shall improve a little over the last three months of the present coffee year, so long as the reference prices of the international coffee markets can maintain their new found and higher trading range.

The September to September contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 65.75 usc/Lb., while this equates to a 45.17% 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 be unchanged yesterday; to register these stocks at 1,304,181 bags. There was meanwhile a 6,340 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 11,198 bags.

The Certified Robusta coffee stocks held against the London exchange were seen to decrease by 26,167 bags or 1.03% over the two weeks of trade leading up to Monday 4th. July, to register these stocks at 2,503,000 bags, on the day. These stocks with the premiums being paid by consumer industries for new robusta coffees from origin had been expected to decline in a more rapid manner, but it would seem that the weight of conilon robusta coffees that are more preferred by the North American roasters than the European roasters, is limiting the drawdown of these stocks for the present.

The commodity markets were mixed but with many markets coming under some pressure yesterday with the combination of British and EU economic concerns and some buoyancy for the U.S. dollar having an influence, which saw the overall macro commodity index coming under pressure through the day. The Sugar, Cocoa, Cotton, Orange Juice, Gold and Silver markets nevertheless had a day of buoyancy, while the Oil, Natural Gas, Coffee, Copper, 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 0.95% lower; to see this Index registered at 433.16. The day starts with the U.S. dollar showing modest buoyancy and trading at 1.290 to Sterling and 1.105 to the Euro, while North Sea Oil is tending softer in early trade and trading at 45.65 per barrel.

The London market and New York markets started the day yesterday on a softer note, but with both markets soon recovering and to see both markets move back above par into the early afternoon trade, but as the afternoon progressed and with perhaps the negative nature of the macro commodity index having an influence within the New York market there was renewed pressure, to once again take both markets south of par. This remained the track for the rest of the day for the markets, albeit that both markets had the ability to bounce of the lows in late trade. The London market ended the day on a modestly softer note, but having recovered 55% of the earlier losses of the day by the close, while the New York market likewise ended the day on a modestly softer note and having recovered 63% of the earlier losses of the day by the close. The modest nature of these losses for the day and accompanied by a positive technical chart picture might assist for the markets to trade on a near to steady note for early trade today against the prices set yesterday, as follows:

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

JUL 1758 – 5                                         JUL 144.20 – 0.65
SEP 1759 – 9                                         SEP 145.55 – 0.85
NOV 1774 – 7                                       DEC 148.40 – 0.75
JAN 1784 – 6                                       MAR 151.00 – 0.65
MAR 1793 – 6                                     MAY 152.40 – 0.70
MAY 1804 – 6                                       JUL 153.70 – 0.70
JUL 1816 – 6                                         SEP 154.90 – 0.60
SEP 1829 – 6                                        DEC 156.70 – 0.50
DEC 1848 – 6                                      MAR 158.25 – 0.50
MAR 1844 – 6                                     MAY 159.05 – 0.45