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

Coffee Market Report

25 Aug 2015
The latest Commitment of Traders report from the New York arabica coffee market has seen the shorter term in nature Managed Money fund sector of this market decrease their net short sold position within the market by 273.29% over the week of trade leading up to Tuesday 18th. August; to liquidate their net short sold position and move into a net long position of 6,195 Lots on the day. Meanwhile the longer term in nature Index Fund sector of this market decreased their net long position within the market by 2.06%, to register a net long position of 26,822 Lots on the day.

Meanwhile the Non Commercial Speculative sector of this market decreased their net short sold position within the market by 108.94% over the same week; to likewise liquidate their previous net short sold position and move into a net long position of 872 Lots. This net long position which is the equivalent of 247,208 bags has most likely been once again reversed into a new net short sold position, over the period of mixed but overall sharply negative trade which has since followed and possibly so too, the net long position of the Managed Money fund sector of the market.

The latest Commitment of Traders report from the London robusta coffee market has seen the Speculative sector of this market increase their net long position within the market by 981.73% over the week of trade leading up to Tuesday 18th. August; to register a net long of 1,125 Lots on the day. This net long that is the equivalent of 187,500 bags has most likely been reduced, over the period of mixed but overall negative trade that has since followed.

The Private Coffee Exporters Association of Colombia which represents exporters of in excess of 60% of Colombian coffee exports, has voiced its opinion that to assist the countries farmers that the Government should lift some of its restrictive rules on the export of coffees. Presently there is a ruling that only quality fully washed arabica coffees can be exported from the country, with all other qualities restricted to domestic consumption and the production of exportable value added soluble coffees.

The association makes the point that should these restrictions be lifted, it would allow farmers to start addressing the production and export of relatively high quality natural process arabica coffees and quality robusta coffees, which would find a home within many value markets. Thus they say, broadening the scope for coffee farmers in Colombia and for farmers in districts that for climatic reasons have not been able to be part of the coffee industry, with these alternative coffees being able to join the washed arabica coffees that presently fly under the well-respected Colombian banner within the main consumer markets.

There was no other news coming to the markets yesterday, with most producers presently stunned by the negative effects of the sharp selloff in commodities over the past couple of days of trade. This being worrisome news for farmers in Brazil, Indonesia and East Africa who still have large volumes of new crop coffees in stock and for farmers in Vietnam, Central America, India, Ethiopia and West Africa who have new crops on the horizon.

But one might question the present selloff that is mostly related to the evidence of slower growth in China and the attrition within the Chinese equity markets, as the reality so far is that this latter equity selloff in China is only related to value added this year and perhaps excessively and aggressively so and is perhaps a logical correction and is not as bad as it seems. While to the fore one might suggest that with China holding massive U.S. dollar reserves and likely with some regionally fragile internal political concerns in mind, to utilise some of these reserves to further stimulate their economy and added to the probability that the U.S.A. might not after all raise interest rates next month, that the U.S. dollar might lose some value. Both of these are factors that might contribute to the dollar losing some weight and by nature with the dollar the currency of commodities, come to the fore to bring back some buoyancy to the markets, as would Chinese stimulus increase demand. Thus perhaps, the present crisis is a short term, rather than a long term problem for commodities.

The arbitrage between the markets narrowed yesterday to register this at 47.90 usc/Lb., while this equates to a 39.36% price discount for the London robusta coffee market. This arbitrage remaining relatively attractive to roasters in comparison to arabica coffee prices, but is perhaps due to widen further in time and when Vietnam stocks start to impact upon the fortunes of the London market.

The Certified washed Arabica coffee stocks held against the New York exchange were seen to decrease by 1,299 bags yesterday; to register these stocks at 2,085,201 bags. There was meanwhile a larger in volume 6,080 bags decline to the number of bags pending grading for this exchange; to register these pending grading stocks at 13,224 bags.

The commodity markets had another dismal day yesterday, with the follow through selloff that was experienced within the equity and commodity markets. The Cocoa and Corn markets did however buck the trend and experience a day of buoyancy and the Wheat market was steady, while the Gold, Natural Gas, Sugar, Coffee, Cotton, Copper, Orange Juice, Soybean, Gold, Silver and Platinum markets continued to slide lower for the day. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 1.87% lower (We apologise for the typo and writing higher rather than lower in yesterday’s report) to see this Index registered at 385.56. The day starts with the U.S. Dollar steady against Sterling and tending a little softer against the Euro and selling at 1.576 to Sterling and 1.157 to the Euro, while North Sea Oil is showing some modest buoyancy in early trade and is selling at 41.65 per barrel.

The London and New York markets started the day yesterday on a follow through softer note, following the dismal close on Friday, in line with the softer track of the overall macro commodity index. This remained the track into the afternoon trade, but while the London market that was posting relatively modest losses remained mostly sideways with its softer trade, the New York market experienced a very brief recovery, prior to slipping back to sharp negative territory. The London market continued to end the day on a softer note, but having recovered 53.1% of the earlier losses of the day, while the New York market ended the day on a soft note and with 87.2% of the earlier losses of the day intact. There might prove to be a degree of exhaustion and cautious hesitancy following the past two days of selling and one might expect to see a degree of stability returning to the markets for early trade today against the prices set yesterday, as follows:

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

SEP 1599 – 20                                  SEP    117.50 – 4.40
NOV 1627 – 15                                DEC   121.70 – 4.75
JAN 1646 – 13                                 MAR  125.25 – 4.75
MAR 1666 – 12                               MAY  127.50 – 4.70
MAY 1688 – 13                                 JUL  129.65 – 4.70
JUL 1709 – 13                                   SEP  131.65 – 4.70
SEP 1730 – 13                                  DEC  134.55 – 4.60
NOV 1751 – 12                                MAR 137.35 – 4.50
JAN 1772 – 12                                 MAY 139.30 – 4.25
MAR 1787 – 12                                 JUL 141.15 – 4.00