The combination of the weak nature of the Brazil Real that takes some of the bite out of the soft reference prices of the international coffee terminal markets in terms of internal market coffee prices in Brazil, is contributing towards negative speculative sentiment within the coffee markets at present. As this comes along with the generally accepted forecast for the significantly 8% to 10% larger new Brazil coffee crop that in terms of the conilon robusta coffees is already starting to be harvested and with the new arabica crop, only a month away from starting to be harvested.
Some also comment that with the dry but mostly sunny winter season having started and with most coffee farms in the main coffee districts in Brazil sporting good ground water retention levels, that it is assisting in the ripening of the coffee cherries. This potentially to assist towards a normal rather than delayed harvest season and with the prospects for rising volumes of new crop coffees due to come to the market in the next couple of months, it further impacts upon speculative sentiment.
The question does remain though in terms of the negative sentiment that is fuelled by the prospects for a larger new Brazil crop is if this might be a case of sell the rumour and buy the fact and that in this respect once the crop has become a reality and the focus starts to move towards the following years biennially bearing lower Brazil crop, that short covering buying shall start to set the markets on a recovery track later in the year. One might speculate that with the speculative and fund sectors of the market always thinking longer term, that this a definite possibility for the markets for the last quarter of the year.
In terms of the consumer markets there has been a lot of noise over the news that Nestle and Starbucks are negotiating their agreement to have Nestle pay 7.15 billion U.S. dollars to have the rights to distribute Starbucks products within selected global retail markets, as this is the first time the market leading coffee company has collaborated with another coffee company. This news comes post the competition that has come for Nestle with the steady growth globally of JDE and makes one think of what the longer-term future developments might be, with the start of a partnership between these two prominent and high-profile coffee companies.
With the London market closed for the day and while the New York market took a downside track, it has further narrowed the arbitrage yesterday, but one would expect to broaden again today. In this respect, the July 2018 to July 2018 contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 38.51 usc/Lb., while this equates to 31.89% 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 4,125 bags yesterday; to register these stocks at 1,990,464 bags. There were meanwhile a smaller in number 2,480 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 30,629 bags.
The commodity markets lacked the participation of the London terminal markets yesterday, with the UK taking their traditional first Monday of May bank holiday, but the rest of the world was active and with most of the U.S. markets active for the day, to see the overall macro commodity index showing some buoyancy for the day. The Oil and Cocoa markets had a day of buoyancy and the Gold market was steady, while the Sugar, New York arabica Coffee and Copper markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.12% lower; to see this index registered at 435.08. The day starts with the U.S. Dollar steady trading at 1.355 to Sterling, at 1.192 to the Euro and with the dollar buying 3.551 Brazilian Real, while North Sea Oil is showing some degree of buoyancy and is selling at US$ 75.90 per barrel.
The New York market and with the London market closed for the holiday’s opened late for the day and on a steady note, but very soon coming under pressure and moving into negative territory. As the afternoon progressed and accompanied by speculative selling in reaction to the latest commitment of trader’s report of a reduced net short sold market, sell stops started to come into play and the losses were accentuated. The market did however hit a point of buying support and to bounce back off the lows, but to nevertheless take a negative track through to the close for the day.
The New York market ended the day on a negative note and with 68.5% of the earlier losses of the day intact, which is not a factor that would inspire confidence while with the London market having been closed yesterday and following the negative influences of a softer New York market, one might expect that there might be some volumes of catch up robusta coffee producer price fixation selling coming into play today. This one would think shall contribute to perhaps a softer start for the London market and a possibly more steady start for the New York market for early trade today, against the prices set in London on Friday and in New York yesterday, as follows:
LONDON ROBUSTA US$/MT NEW YORK ARABICA USc/Lb.
MAY 1808 – 23 MAY 118.20 – 2.25
JUL 1813 – 18 JUL 120.75 – 1.85
SEP 1800 – 13 SEP 123.15 – 1.80
NOV 1799 – 12 DEC 126.60 – 1.80
JAN 1800 – 12 MAR 130.05 – 1.80
MAR 1806 – 12 MAY 132.35 – 1.80
MAY 1812 – 12 JUL 134.45 – 1.75
JUL 1824 – 12 SEP 136.35 – 1.75
SEP 1836 – 12 DEC 139.05 – 1.70
NOV 1851 – 12 MAR 141.80 – 1.65