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

Coffee Market Report

17 Sep 2018

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 0.51% over the week of trade leading up to Tuesday 11th. September; to register a new net short sold position of 105,874 Lots. This net short-sold position which is the equivalent of 30,014,810 bags has most likely been little changed, following the period of mixed but overall sideways trade, which has since followed.

The latest Commitment of Traders report from the London robusta coffee market has seen the Speculative Managed Money sector of this market decrease their net short sold position within this market by 2.48% during the week of trade leading up to Tuesday 11th. September; to register a net short sold position of 35,438 Lots on the day. This net short sold position which is the equivalent of 5,906,333 bags has most likely been little changed, following the period of mixed but overall sideways trade, which has since followed.

There are many speculative reports coming to the fore from the Indian coffee states of Kerala and Karnataka, which attempt to calculate the degree of damage that has been done by the recent couple of months of excessive monsoon rains. These rains having caused landslides and damage from falling trees upon many farms, with reports indicating that the damage to the new crop potential might well exceed 14% and that the forthcoming new coffee crop might be lower than 15 million bags.

But so far and against the negative impact of the large new Brazil coffee crop this year and ahead of what is forecast to be another bumper new crop from Vietnam, which is due to start being harvested next month, the news from India does little to dent the prevailing bearish sentiment. It really would need the markets to encounter the fundamental of damaging climatic conditions for one or other of the main coffee producer blocs, for market sentiment to change and thus for the short term, there shall most certainly be a close eye being kept over the rainfall reports out of Brazil.

However, with the evidence of the extensive short sold status of the speculative sector of the New York market, it is difficult to believe that this can be significantly increased and, in this respect, one might guess that the downside potential of the New York market is somewhat limited. While the potential for a violent short covering positive reaction within this market that would come with any presently unforeseen negative climatic fundamental news, is a medium-term possibility. Particularly so, in terms of the erratic and unpredictable global weather conditions.

The November 2018 to December 2018 contracts arbitrage between the London and New York markets narrowed on Friday, to register this at 32.16 usc/Lb., while this equates to 32.26% 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 9,144 bags on Friday; to register these stocks at 2,307,850 bags. There were meanwhile a smaller in number 8,067 bags decrease in the number of bags pending grading for this exchange; to register these pending grading stocks at 134,241 bags.

The commodity markets encountered some degree of buoyancy developing for the U.S. dollar on Friday, with the majority of the markets tending softer, to see the overall macro commodity index taking a softer track for the day. The U.S. Oil, Cotton, Wheat and Corn markets nevertheless ended the day on a positive note, while the Brent Oil, Natural Gas, Sugar, Cocoa, Coffee, Copper, Orange Juice, Soybean, Gold and Silver markets ended the day on a softer note. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.47% lower; to see this index registered at 400.57. The day starts with the U.S. Dollar steady and trading at 1.309 to Sterling, at 1.163 to the Euro and with the dollar buying 4.174 Brazilian Real, while North Sea Oil is steady and is selling at US$ 77.80 per barrel.

The London and New York markets started the day on Friday trading south of par but with both markets soon recovering towards par, to move up to trade around par for the early afternoon trade. As the afternoon progressed the London market continued to trade around par, while the New York market came under pressure and moved down into negative territory and finally in late trade, to be joined by the London market moving down towards a soft close.

The London market ended the day on a negative note and with 73.3% of the earlier losses of the day intact, while the New York market ended the day on a likewise negative note and with 82.6% of the earlier losses of the day intact. This close does not assist to paint a pretty picture for the charts and with the soft Brazil Real in play, one might think that the markets are due for little better than a near to steady start for early trade today. Against the prices set on Friday, as follows:

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

SEP 1537 – 18                                                SEP 95.45 – 0.95
NOV 1489 – 11                                              DEC 99.70 – 0.95
JAN 1497 – 11                                                MAR 103.15 – 0.90
MAR 1516 – 10                                              MAY 105.55 – 0.90
MAY 1535 – 9                                                 JUL 107.95 – 0.90
JUL 1553 – 8                                                   SEP 110.35 – 0.85
SEP 1569 – 9                                                   DEC 113.75 – 0.90
NOV 1581 – 10                                               MAR 117.10 – 0.85
JAN 1594 – 10                                                MAY 119.15 – 0.85
MAR 1612 – 8                                                 JUL 120.90 – 0.90