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

Coffee Market Report

30 Sep 2015

Brazil’s official National Crop Supply Agency CONAB came forth with a revision of the coffee crop in their latest forecast yesterday, for current July 2015 to June 2016 crop that is near to completion. They have forecast for this new coffee crop, that the arabica coffee production may be 5.14% lower than their figure for the 2014 crop of 32.31 million bags, at 31.30 million bags. While they have forecast the Conilon robusta production to be 20.18% lower than their figure for the 2014 crop of 13.04 million bags, at 10.85 million bags. Therefore their third forecast for this new July 2015 to June 2016 crop year is estimated to bring in a rounded total 42.15 million bags. This figure is considered to be toward the lower end of current general industry and trade forecasts and lower than their earlier mid harvest estimate which was estimated at 44.28 million bags, whereas this their third of four coffee year crop estimates and is 7.56% lower than their crop assessment for 2014, which was pegged at 45.34 million bags.

This crop estimate by Conab is reliant on producer surveys that may be somewhat conservative and in particular their estimate of the Brazil Conilon robusta coffee output which remains much lower than the general consensus of forecasts and is overall five million bags short of a median range of estimates taken from four independent forecasters that were released as recently as last month. Thus, whereas the Conab arabica forecast may be considered slightly understated but still on par with other independent forecasts; when one considers the shortfall in the estimated Conilon robusta production, much of which is consumed within Brazil, the overall outlook for this July 2015 to June 2106 crop would seem to be closer to general trade and industry expectations at closer to 50 million bags.

The Coffee Exporters Association of Brazil Cecafe, has meanwhile come forth with their latest projection for anticipated exports for Brazil in 2015, which they indicate is likely to decline by 5.27% on that of the previous record export year and for exports to reach 34.50 million bags of equivalent green and soluble value added total coffee exports this year. The reason for the decline has been conveyed in the lower overall production that is the culmination of unseasonal dry weather and subsequent stress that affected the crop in development. This is now as the harvest draws to a close being compounded by evidence of lower percentages of bolder bean coffees coming to the fore from the new arabica coffee harvest.

Thus, with earlier reports indicating that the internal privately held stocks in Brazil ahead of this current harvest was at 14.30 million bags in March this year, and with exports running at over 2 million bags per month since then, the projection is that Brazil would have entered this crop year with approximately 8 million bags of carryover stock to buffer the prevailing lower crop. This together with the estimated general trade and industry figure of 50 million bags current production, a cumulative total of 56.30 million bags available to supply Brazil’s domestic and international consumer markets over the current July 2015 to June 2016 coffee year and demand within these markets steady at 55 million bags, a tighter carryover stock position to come, ahead of the next 2017 coffee crop year in July 2017.

The news is all about Brazil at the moment; and with much of the speculation regarding the current 2015 to 2016 crop already well absorbed by the markets, the focus has turned to the new prospective crop that is currently flowering across the key growing areas of the Brazil coffee belt. The weather will undoubtedly begin to play a part and as long as the summer rains set well across the coffee producing areas, there is potential for a full recovery in the next crop to come. This will assist to boost the lower carryover stocks that may be evident by the first half of next year. The short term weather forecast meanwhile shows a cold front heading across Minas Gerais for the weekend and prospects for participation over the area, sunny skies return next week, until the following weekend when light rain is expected again.

The arbitrage between the markets narrowed yesterday, to register this at 49.36 USc/Lb., while this equates to 40.85% price discount for the London robusta coffee market. This arbitrage remains 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 3,445 bags yesterday; to register these stocks at 1,998,621 bags. There was a decrease by 474 bags in the number of bags pending grading for this exchange; to register these pending grading stocks at 36,765 bags.

It was a mixed day in the commodity markets yesterday, with the leading in influence Oil markets positive on the day but with many players on the side lines ahead of the latest round of economic data that is due to be released into the markets over the course of this week. It was a steady day Silver, Copper and Palladium, although a softer day in Gold and Platinum. It was a positive day for Soybean, Sugar, Corn, Cotton, and Coffee, while the Wheat, Cocoa, Orange Juice markets finished lower on the day. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.17% higher and this Index registered at 389.06. The day starts with the U.S. Dollar trading at 1.515 to Sterling and 1.122 to the Euro, the Brazil Real is trading at 4.057 against the U.S. Dollar, while North Sea Oil is steady in early trade and is selling at 47.13 per barrel.

The London and New York markets started the day yesterday with a degree of buoyancy and in relatively good volume. Both markets continued into midsession on a positive track with a degree of short covering and underlying roaster support providing support. A contributory factor toward the positive turn as the day progressed was the mild recovery of the Brazil Real against the U.S. Dollar, while the afternoon release of the latest updates of the Brazil crop forecast reports provided additional speculative impetus. The markets continued to build on the gains of the day as the afternoon progressed, but with buying interest falling away toward the latter end of the session in both markets and selling activity return to floor, London finished the day near to the high, whereas New York gave back some of the earlier gains and settled closer to the middle of the days’ range, to set the close yesterday in both markets after a buoyant session in moderate volume, as follows;

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

NOV 1576 + 28                           DEC 120.85 + 1.70
JAN 1583 + 27                            MAR 123.95 + 1.50
MAR 1596 + 24                          MAY 126.10 + 1.45
MAY 1615 + 22                          JUL 127.95 + 1.35
JUL 1635 + 22                            SEP 129.55 + 1.20
SEP 1654 + 21                            DEC 132.10 + 1.20
NOV 1672 + 21                          MAR 134.55 + 1.20
JAN 1691 + 21                           MAY 136.35 + 1.20
MAR 1701 + 21                         JUL 138.25 + 1.20