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

Coffee Market Report

02 Sep 2015
With the month of August passed, the National Coffee Institute of Costa Rica has announced that the countries coffee exports for the month were 7,103 bags or 11.43% higher than the same month last year, at a total of 69,263 bags. This improved performance does however follow a number of months of relatively modest exports and contributes to the cumulative exports for first eleven months of the present October 2014 to September 2015 coffee year to still being 94,350 bags or 7.74% lower than the same period in the previous coffee year, at a total of 1,124,210 bags.

The preliminary coffee exports from Brazil for the month of August have been announced with exports for the month reported to have been 19,774 bags or 0.74% lower than the same month last year, at a total of 2,669,920 bags. One might comment that this is a relatively stable export performance, in terms of the negative effect upon sales that has come with the soft nature of the reference prices of the international coffee markets over the past month. But volumes are perhaps being buoyed more than the fulfilment of exporter’s forward sales commitments, than by aggressive sales of new crop coffees.

Presently it is dry and warm for south east Brazil, which shall assist for the tail end of the new crop arabica coffee harvest to be concluded in the coming weeks. While the longer term weather forecasts are indicating seasonal light rains for the month of September, with good seasonal rains to come for the follow on month of October. Thus for the present and albeit that forward forecasts are not necessarily that accurate, it is looking to be business as usual for the prospects for a good spring and summer rain season for Brazil, with a corresponding good flowering towards the prospects for next year’s Brazil coffee crop. News that does however, tend to dampen the spirits of the speculative sector of the coffee markets.

Albeit early in the month, traders in Vietnam who are reporting that they continue to encounter price resistance from the farmers and internal intermediary traders of past crop robusta coffee stocks, are forecasting that so long as the London market remains soft, they do not foresee much change in the coming weeks. In this respect, they are forecasting that coffee exports for the month of September might only total 1.5 million bags.

If this proves to be the case, one might expect to see the internal market carry substantial quantities of past crop coffee stocks and wish estimates that range between 7 million and 9 million bags, into the start of the potentially larger new crop harvest during the coming month. This would be a substantial number and one might guess that unless there are some signs that the markets might recover in the short to medium terms, one might still expect to see increased selling aggression coming into play. But perhaps this might only be by the end of the year, rather than earlier on during the new crop harvest.

In terms of any potential for news to buoy the coffee markets it would appear so far, that it might only be related to the prevailing El Nino phenomenon within the Pacific Ocean. Presently this continues to be a mild El Nino and not significantly threatening, but there are some forecasters who are suggesting that this could strengthen later in the year and thus, start to become threatening to the longer term prospects for the Pacific Rim coffee producing countries.

The arbitrage between the markets narrowed yesterday to register this at 48.09 usc/Lb., while this equates to a 39.81% 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 increase by 1,767 bags yesterday; to register these stocks at 2,088,715 bags. There was meanwhile a larger in volume 4,075 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 17,980 bags.

The commodity markets continued on their roller coaster ride yesterday, with a sharp reversal in sentiment that saw the Oil markets once again tumble. Sentiment having been fuelled by further disappointing news in terms of the Chinese economy, with is seemingly being illustrated by the evidence of sluggish shipping volumes both in and out of China for the present. While the International Monetary Fund announced yesterday that they see global economic expansion to be much softer than they had estimated a couple of month ago, to further dampen spirits within many of the markets. The Sugar, Cocoa, Wheat, Gold, Silver and Platinum markets nevertheless had a day of modest buoyancy and the Natural Gas market was near to steady, while the Oil, Coffee, Cotton, Copper, 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 1.25% lower to see this Index registered at 394.77. The day starts with the U.S. Dollar steady and selling at 1.531 to Sterling and 1.129 to the Euro, while North Sea Oil is showing buoyancy in early trade and is selling at 47.05 per barrel.

The London market and New York markets opened the day yesterday on a near to steady note, in thin and lacklustre trade. The London market remained steady into the afternoon and with the New York market taking a brief move into positive territory but this was short lived and while the London market remained near to par, the New York market started to come under pressure and to move well into negative territory and soon followed by more modest losses for the London market. The New York market with the negative influences of the softening overall macro commodity index coming into play attracted further losses as the afternoon progressed, while the London market continued within an environment of lacklustre trade to remain within modestly negative territory. The London market continued to end the day on a softer note and with 47.1% of the losses of the day intact, while the New York market ended the day on a very soft note and with 93.3% of the earlier losses of the day intact. This close does little to inspire and with the charts tending negative, one might expect little better than a steady to soft start for early trade today against the prices set yesterday, as follows:

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

SEP 1583 + 2                                  SEP     117.05 – 3.50
NOV 1603 – 8                                DEC    120.80 – 3.50
JAN 1618 – 10                               MAR   124.30 – 3.45
MAR 1636 – 10                             MAY   126.60 – 3.35
MAY 1658 – 8                                 JUL   128.70 – 3.30
JUL 1679 – 8                                   SEP    130.70 – 3.25
SEP 1698 – 9                                  DEC    133.55 – 3.05
NOV 1719 – 9                                MAR   136.45 – 2.75
JAN 1740 – 9                                  MAY  138.55 – 2.30
MAR 1755 – 9                                  JUL  140.45 – 2.15