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

Coffee Market Report

24 Jun 2015
The soft nature of the reference prices of the London robusta coffee market remain a concern within the internal market in Vietnam, with farmers and internal market traders still holding significantly large stocks and now running out of time ahead of the start of the next and potentially larger new robusta coffee crop that should start in October this year. Thus while exporters in Vietnam have been struggling to cover their forwards sales commitments with affordable coffees from the price resistant internal market over the past few months, the comments are that one might foresee some easing of this price resistance and some more aggressive internal market selling starting to occur by August. Meanwhile however and with the internal market price resistance continuing for the present, the asking differentials for new short term robusta coffee business out of Vietnam remain firm.

This internal market price resistance likewise remains the case within Mexico and Central America and to a lesser degree in Colombia, which continues to dictate relatively firm asking differentials over the prevailing value of the New York market for new washed arabica coffee sales from this producer bloc. However most consumer roasters are already holding good forward sales cover from the region and with exporters concentrating upon the fulfilment of these forward sales and struggling to find affordable coffees to cover such sales, there is something of an artificial tightness of supply for new business being experienced within Central America at the present. But perhaps once the slight chance for a windfall weather disaster with frost in Brazil is over and with the new Central American crop due to start at the end of the year, one might expect to see more coffees from the regions start to come to the market.

It has been twenty one years since there were last any damaging frosts within the coffee districts in Brazil and what was traditionally a fear factor within the world coffee industry and one that used to inspire large volumes of precautionary pre Brazil winter cover on the part of the main coffee industries, has tended to fall away from industry strategic planning and likewise, on the part of the speculative sector of the market. Traditionally though the most vulnerable period for potential frost damage used to come with the periods around the full moon and the clear nights that usually come with the full moon, which shall once again occur on Thursday next week.

Thus while there would appear to be little chance for frost issues in Brazil this year, one might foresee the more vintage players within the market keeping an eye upon the weather reports from Brazil for during the coming week and once again at the end of July, when the last full moon of this year’s winter season shall occur. From thereon and during September, the next focus of attention in terms of Brazil weather shall be the speculation on the start of the next spring and summer rain season that shall have to come in good time and by early October, if it is to support the early forecasts for a larger new 60 million bags 2016 coffee crop for Brazil.

The arbitrage between the markets has narrowed yesterday to register this at 50.09 usc/Lb., while this equates to a still attractive to roasters 38.62% price discount for the London robusta coffee market. This arbitrage continues to inspire some degree of consumer market roaster interest in robusta coffees, which assist to take some of the bite out of the comparatively firm arabica coffee prices.

The Certified washed Arabica coffee stocks held against the New York exchange were seen to increase by 5,790 bags yesterday; to register these stocks at 2,138,699 bags. There was meanwhile a smaller in volume 3,574 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 49,623 bags.

The commodity markets had another mixed day yesterday but with sufficient buoyancy within selected markets, to assist the overall macro commodity index to show a degree of buoyancy. Meanwhile improved housing data for the U.S.A. assisted to bring a degree of buoyancy for the U.S. dollar, while the never ending saga over the situation in Greece, tended to bring hesitancy to the fortunes of the Euro. The Oil, Copper, Orange Juice, Wheat and Corn markets had a day of buoyancy and the Natural Gas and Soybean markets were steady, while the Sugar, Cocoa, Coffee, Gold, Silver and Platinum markets tended softer for the day. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.18% higher to see this Index registered at 421.23. The day starts with the U.S. Dollar tending softer and selling at 1.577 to Sterling and 1.121 to the Euro, while North Sea Oil is steady in early trade and is selling at 62.05 per barrel.

The London and New York markets started the day yesterday on an unsteady note and with the markets tending softer in early trade, but with a recovery for the New York market, to show buoyancy into the early afternoon trade. This buoyancy was hesitantly matched within the London market, but the recovery was short lived for London and while the New York market remained on the positive sided of par and having posted gains of as much as 2.35 usc/Lb., the London market slipped back into negative territory. The positive nature of the New York market did however start to come under pressure as the afternoon progressed and with sell stops being triggered to accelerate the reversal, the market quickly slipped back into negative territory and with the London market likewise losing some more weight. The London market continued to end the day on a soft note and with 78.3% of the losses of the day intact, while the New York market likewise ended the day on a soft note and with 74.7% of the earlier losses of the day intact. This soft close does little to inspire confidence and one might not expect to see any better than a near to steady start for early trade today against the prices set yesterday, as follows:

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

JUL 1826 – 31                             JUL   127.70 – 2.65
SEP 1755 – 47                             SEP   129.70 – 2.80
NOV 1767 – 45                           DEC  133.50 – 2.80
JAN 1780 – 45                            MAR 137.15 – 2.85
MAR 1799 – 45                          MAY 139.30 – 2.85
MAY 1815 – 45                           JU L 141.20 – 2.75
JUL 1833 – 45                             SEP  142.95 – 2.70
SEP 1852 – 45                             DEC 145.25 – 2.55
NOV 1871 – 45                           MAR 147.50 – 2.50
JAN 1894 – 45                            MAY 148.95 – 2.45