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

Coffee Market Report

20 Feb 2018

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 16.48% over the week of trade leading up to Tuesday 13th. February; to register a new net short sold position of 46,318 Lots. Meanwhile the longer term in nature Index Fund sector of this market decreased their net long position within the market by 3.31%, to register a net long position of 40,099 Lots on the day.

Over the same week, the Non-Commercial Speculative sector of this market decreased their net short sold position within this market by 15.66%, to register a net short sold position of 47,736 Lots. This net short sold position which is the equivalent of 13,532,944 bags has most likely been further increased, following a period of mixed but overall more negative trade that has since followed and likewise, that of the managed money fund sector of the market.

Following the news that the authorities in El Salvador are on track with the support of the Central American Bank of Economic Integration to provide up to 80 million U.S. dollars of support to the countries coffee farmers for the purposes of renovation of their coffee farms, the National Coffee Association of Guatemala have announced that they are working with their government and the Inter-American Development bank towards a similar program for their countries coffee farmers. In this respect they are proposing to inject approximately 100 million U.S. dollars into their coffee industry, while they estimate that the proposal should be complete in approximately six weeks’ time.

These programs to assist their coffee farmers to renovate their coffee farms by replacing aged trees with new higher yielding and disease resistant varieties and along with improved agricultural practices, follow the example set by their neighbours Guatemala, who have doubled their coffee production over the past five years and are now the world’s fifth largest coffee producer. Thus, one might think that with such a nearby example of how to successfully manage such programs, that it is a positive factor for similarly successful programs within their neighbouring countries. Improved yields assisting to a degree to counter soft prices, but with the price dictates of the prevailing soft prices of the New York market making it difficult for even the high yielding and low-cost coffee farms in Honduras, to make any profits from the new crop.

The May 2018 to May 2018 contracts arbitrage between the London and New York markets broadened yesterday, to register this at 41.48 usc/Lb., while this equates to 34.44% 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 8,927 bags yesterday; to register these stocks at 1,905,281 bags. There was meanwhile smaller in number 2,115 bags decline to the number of bags pending grading for this exchange; to register these pending grading stocks at 13,586 bags.

With the U.S.A. taking the Presidents Day holiday yesterday, many of the leading commodity exchanges were closed for the day but with the overall macro commodity index for such markets that were open for the day, taking something of a steady track for the day. The Oil, Natural Gas and Cotton markets had a day of buoyancy and the Cocoa market was steady, while the Sugar, London robusta Coffee, Gold and Silver markets had a softer day’s trade. Without the participation of many market there can be no change to the Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets, which saw this index registered at 425.35 on Friday. The day starts with the U.S. Dollar showing a degree of buoyancy and trading at 1.397 to Sterling, at 1.238 to the Euro and with the dollar buying 3.234 Brazilian Real, while North Sea Oil is tending softer and is selling at US$ 64.80 per barrel.

The London trading solo for the day while the New York market was on holiday, started the day marginally south of par and returning to trade either side of par, for the early afternoon trade. Trade was however with the North Americans off the field of play and likewise the Vietnamese who were still celebrating their Tet New Year holiday, very thin and lacklustre in nature. As the afternoon progressed and with the market remaining mostly steady and close the par for most of the day, the market finally came under pressure in late trade and headed into a somewhat unexpected soft close.

The London market ended the day on a soft note and with 81.2% of the earlier losses of the day intact, which does little to inspire confidence for sentiment ahead of the return of the New Market today. However one might think that post the late in the day collapse of the New York market ahead of the holiday on Friday and with the London market having had two trading days of softer prices that there might be some degree of caution, which shall assist the markets towards a steady start for early trade today, against the prices set in New York on Friday and in London yesterday, as follows:

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

MAR 1777 – 12                                              MAR 117.95 – 3.80
MAY 1741 – 13                                              MAY 120.45 – 3.70
JUL 1767 – 14                                                JUL 122.75 – 3.60
SEP 1770 – 13                                                SEP 125.05 – 3.55
NOV 1775 – 11                                               DEC 128.60 – 3.50
JAN 1781 – 11                                                MAR 132.00 – 3.40
MAR 1791 – 9                                                MAY 134.10 – 3.35
MAY 1808 – 6                                                JUL 135.95 – 3.35
JUL 1835 – 7                                                  SEP 137.60 – 3.30
SEP 1838 – 7                                                  DEC 140.05 – 3.30