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

Coffee Market Report

15 Dec 2017

The European Coffee Federation ECF have reported that the port warehouse stocks held within warehouses in the ports of Antwerp, Hamburg, Genoa, Le Havre and Trieste fell by 450,417 bags or 3.97% during the month of October, to register these stocks at the end of the month at 10,907,217 bags. These stocks do not however include the unreported stocks from the warehouses in the port of Bremen, who no longer contribute to the end month stock figures. Nor does this report consider the industry on site inventory stocks, the transit bulk container stocks and stocks being held within non-reporting private warehouses throughout Western and Eastern Europe.

This said and with the combination of West and East Europe consuming approximately 1.05 million bags of coffee a week, one might guess that the additional stocks that were not included in the report, might contribute to as much as 2.5 million bags to the reported stocks. Thus, indicating that as at the end of October, the European coffee stocks might have been close to the equivalent of close to a relatively safe, twelve and half weeks of Western and Eastern European roasting demand.

But one would presume that there would have been a further draw down in the levels of the European coffee stocks during the month of November, to fill in for the relatively low volumes of exports from Brazil, Vietnam and Indonesia during the month. Making one think that by now the European coffee stocks might be getting close to more normal levels of between eleven and twelve weeks of roasting demand, but with a potential flood of new crop Central American and Vietnam coffees soon to start to halt the steady decline in these stocks.

The weather reports continue to indicate favourable for the development of the new 2018 crop cherries in Brazil and for the present, the prospects for this being a significantly larger new crop, remains a bearish factor for market sentiment. However, with the Climate Prediction Centre of the U.S.A. National Weather Service joining many other meteorological forecasts for a new La Niña phenomenon to develop during the first quarter of the coming year, there remains a possibility for drier weather for South East Brazil and including most of the main coffee districts. But there is no certainty that even if the La Niña is to develop, that it would be anything more than a modest one and it this is the case, it would not be expected to influence threatening weather conditions and for the present, there are no fears of partial drought in the coming months, being voiced.

Meanwhile the weather conditions in Vietnam are very favourable for the new crop harvest and the harvest is in full swing, but many report that with the soft nature of the reference prices of the international coffee markets, that farmers are not showing any selling aggression. But there is nevertheless more than sufficient new crop robusta coffee supply available for the countries exporters, who are well able to keep up with their forward contract commitments.

The March 2018 to March 2018 contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 41.37 usc/Lb., while this equates to 34.39% price discount for the London Robusta coffee market.

The Certified washed Arabica coffee stocks held against the New York exchange were seen to increase by 576 bags yesterday; to register these stocks at 1,949,043 bags. There were meanwhile a larger in number 1,686 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 24,040 bags.

The commodity markets were mixed in trade yesterday, to see the overall macro commodity index taking a steady track for the day. The Oil, Cocoa, Coffee, Cotton, Copper, Wheat, Gold and Silver markets had a day of buoyancy, while the Natural Gas, Sugar, Orange Juice, 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 0.15% higher; to register this index at 404.54. The day starts with the U.S. Dollar showing a degree of buoyancy and trading at 1.343 to Sterling, at 1.178 to the Euro and 3.342 to the Brazilian Real, while North Sea Oil is steady and is selling at US$ 64.05 per barrel.

The London market started the day yesterday modestly north of par and followed by a degree of buoyancy for the New York market and with the London market soon following this trend and moving into positive territory and with both markets taking a positive track, into the early afternoon trade. As the afternoon progressed the New York market started to come under pressure and to move back to and marginally below par, while the London market maintained its positive stance. The New York market did however soon bounce off its nearby lows and to see the London market showing a degree of new found muscle and the New York market taking a steady stance.

The London market ended the day on a very positive note and with 87.1% of the earlier gains of the day intact, while the New York market ended the day on a modestly positive note and with only 16.7% of the earlier gains of the day intact. This close while constructive does not provide much of an indication for direction and one would think that the markets shall be due for only a hesitant and thinly traded steady start for early trade today, against the prices set yesterday, as follows:

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

JAN 1743 + 31                                               DEC 119.15 + 0.20
MAR 1740 + 27                                             MAR 120.30 + 0.20
MAY 1747 + 24                                             MAY 122.45 + 0.20
JUL 1786 + 19                                               JUL 124.70 + 0.25
SEP 1795 + 18                                               SEP 127.05 + 0.25
NOV 1804 + 19                                              DEC 130.55 + 0.20
JAN 1813 + 19                                               MAR 133.90 + 0.20
MAR 1823 + 19                                             MAY 136.00 + 0.20
MAY 1848 + 19                                             JUL 138.05 + 0.20
JUL 1880 + 19                                               SEP 140.05 + 0.25