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

Coffee Market Report

14 Sep 2015
The latest Commitment of Traders report from the New York arabica coffee market has seen the Non Commercial Speculative sector of this market increase their net short sold position within the market by 17.29% during the week of trade leading up to Tuesday 8th. September; to register a net short sold position of 28,991 Lots. This net short sold position which is the equivalent of 8,218,820 bags has most likely been further increased, following the period of mixed but overall softer trade which has since followed.

The Council of Coffee Exporters in Brazil have announced flat overall export figures for the year so far, with their report that coffee exports for the first eight months of this year were 1.2% lower than the same period in the previous year, at a total of 23.4 million bags. They have however noted that the value of these marginally lower exports was however 1% higher than the same period last year, at a total of 4.08 billion U.S. dollars.

This value factor in terms of the Brazil Real that was trading at 2.39 to the U.S. dollar at the beginning of 2014 and 2.66 to the U.S. dollar at the beginning of 2015 and is now trading at 3.87 to the U.S. dollar, the domestic currency income from coffee exports this year is rather dramatically higher than was the case over the first eight months of last year. Thus despite the negative nature of the international coffee prices for this year and with declining prices over the recent months, the Brazilian coffee farming industry is still in receipt of relatively supportive farm gate prices.

Meanwhile and with the new Brazil crop near to completion and despite the host of new crop forecasts that tend to point towards an approximate 4 million bags deficit new crop of 48 million bags, the National Statistics Institute in Brazil have forecasted that this new crop will only be 43.7 million bags. This Institute is however traditionally very conservative with its numbers and it is quite apparent from speculative trade reaction on Friday, that the dramatically low figure was largely ignored.

The Coffee Board of India has reported that the country’s coffee exports for the first thirty seven weeks of this year up to the 10th. September was 1.77% lower than the same period last year, at a total of 3,143,700 bags. This lower export performance report is however no reflection upon the approximately 12% larger overall new crop that is fuelling these exports, but rather the evidence of internal market price resistance that has prevailed this year, which has impacted upon the countries coffee exports.

The National Coffee Federation of Colombia has assisted to further dampen speculative spirits within the New York market with their forecast for an approximate 5% increase in coffee production for the coming year, which they now see to be approximately 13.7 million bags. These Colombian coffees adding, along with the forecasts for an overall larger new Central American crop that is soon due to start being harvested and the potential for some recovery in the Peru crop next year, more fine coffee to the already adequate consumer market supply for the coming October 2015 to September 2016 coffee year.

There is however some question in terms of Colombian, Peruvian and Indonesian longer term coffee production, which come with the prevailing El Nino phenomenon within the Pacific Ocean which is so far proving to be relatively a relatively mild El Nino and not yet damaging. However there are conflicting forecasts with some indicating that it shall start to wane during the second quarter of next year, while others forecast that it may well strengthen in intensity and bring with it damaging dry weather for the Pacific Rim coffee producing countries. Thus one can expect much debate over the intensity of the El Nino and the corresponding speculation of the damage it will cause, in the coming months. Albeit that so far, the El Nino has done nothing to support speculative sentiment within the coffee markets.

The arbitrage between the markets broadened on Friday to register this at 46.15 usc/Lb., while this equates to a 39.60% 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 22,544 bags on Friday; to register these stocks at 2,044,127 bags. There was meanwhile a smaller in volume 12,825 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 41,324 bags.

The commodity markets were somewhat lacklustre on Friday, with many players now looking towards this week’s meeting of the Federal Reserve Bank of the U.S.A. and the endless speculation over the potential for a hike in U.S. interest rates. While with the Chinese economic figures repetitively indicating slowing growth, there is little confidence within the majority of the markets. The Natural Gas, Sugar, New York arabica Coffee, Cotton, Copper, Orange Juice, Wheat and Corn markets had a steady to buoyant day, while the Oil, Cocoa, London robusta Coffee, Soybeans, Gold, Silver and Platinum markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.20% lower to see this Index registered at 395.17. The day starts with the U.S. Dollar near to steady and trading at 1.545 to Sterling and 1.135 to the Euro, while North Sea Oil is steady in early trade and is selling at 47.00 per barrel.

The London market started the day on Friday on a marginally softer note and followed by a near to steady start for the New York market, but while the New York market soon recovered and took a positive track into the afternoon trade, the London market remained below par. The New York market did however come under pressure as the afternoon progressed and once the Americans entered the field of play, to head back to par and with the London market remaining within negative territory. This remained very much the mood and the track for the rest of the day, with the markets taking an erratic sideways track for thereon. The London market ended the day on a soft note and with 63.6% of the losses of the day intact, while the New York market ended the day with hesitantly modest buoyancy and with only 8.8% of the earlier gains of the day intact. This close does little to inspire but with the evidence of the increased speculative short position within New York that has most likely been since increased one might think that this market might be seen to be over sold, which could inspire some degree of advantageous industry buying to come to the fore to support a degree of buoyancy for early trade today against the prices set on Friday, as follows:

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

SEP 1543 – 14                                       SEP    113.35 + 0.30
NOV 1552 – 14                                     DEC   116.55 + 0.15
JAN 1567 – 14                                       MAR 120.00 + 0.10
MAR 1585 – 15                                     MAY 122.30 + 0.10
MAY 1605 – 15                                       JUL 124.40 + 0.10
JUL 1625 – 15                                         SEP 126.40 + 0.10
SEP 1645 – 15                                        DEC 129.25 unch
NOV 1665 – 15                                      MAR 132.05 – 0.05
JAN 1685 – 15                                       MAY 134.05 – 0.10
MAR 1707 – 15                                        JUL 136.05 – 0.10