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

Coffee Market Report

15 Oct 2015
The National Institute in Honduras have come forth with an approximate coffee export number for the just completed October 2014 to September 2015 coffee year, with their report that exports for this coffee year were 20.2% higher than the previous coffee year, at a total of 5.02 million bags. This number following the more precise number recorded for the first eleven months of this past coffee year, would indicate that the country’s exports during the month of September were approximately a very modest 21,300 bags.

The report is however accompanied and with the evidence of the maturing coffee cherries on the trees, that the new Honduras crop shall be a significantly larger crop and that this shall fuel a 9.9% increase in coffee exports for this new October 2015 to September 2016 coffee year, to total approximately 5.52 million bags. This potential for an approximate 500,000 bags of coffee exports for the new coffee year, might well counter the potential for a small dip in production in Colombia for their coming April to August Mitaca crop, which could potentially suffer from the El Nino inspired dry weather that has reduced the potential of the flowering towards the midyear production in Colombia in 2016.

Meanwhile and while the consumer markets await the advent of the pending new Central American crop coffees that shall start to impact in good volume during the first quarter of next year, supply of fine washed arabica coffees shall be dominated by the new main crop coffees from Colombia that are already in harvest. This new crop having benefited from the good weather conditions earlier this year, which provides signs that it shall prove to be a good main crop and one that shall fuel steady fine washed arabica coffee supply for the short to medium term.

The Vietnam Customs Authorities have reported that the country’s coffee exports of mostly robusta coffees for the month of September have proved to have been below expectations, at a total of close to 1.45 million bags. This relatively modest number they say, has resulted in the countries cumulative coffee exports for the just completed October 2014 to September 2015 coffee year to have been 21.6% lower than for the previous coffee year, at a total of 21.02 million bags.

This poor export performance over the past coffee year in Vietnam that is related to internal market price resistance and inflated asking prices rather than to lack of supply, has resulted in significant carryover stocks into this new October 2015 to September 2016 coffee year with stocks that one would guess at around 6 million bags of robusta coffee due to join the approximately 28 million bags of coffee from the new crop. This new crop has already started and is due to start peaking during the second half of next month and bringing with it some degree of pressure for farmers and internal traders to look to make space for the new crop coffees and to liquidate some of these old stocks, which with the past few days of buoyancy within the London market is now starting to come into play.

So far however, the volumes of sales of these stock coffees remain relatively modest and still suffer from a degree of internal market price resistance, which is keeping asking price differentials on the part of the exporters relatively high. This scenario unless there is a further weather inspired significant in value price rally within the reference prices of the London market, is likely to continue for the rest of the year. With the differentials so long as the present prices remain the bench market, only likely to start falling for exports during the first quarter of next year, and thereon.

The second month arbitrage between the markets narrowed yesterday, to register this at 63.75 usc/Lb., while this equates to a 46.18% 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 1,337 bags yesterday; to register these stocks at 1,904,540 bags. There was meanwhile a larger in volume 2,371 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 72,009 bags.

The commodity markets were mixed in trade yesterday, but with the softer U.S. dollar assisting to buoy the macro commodity index for the day. There is however some concerns in terms of medium term sentiment, with the continued signs of softer growth potential for China, while U.S. retail sales were seen to be only steady for the month of September. The Natural Gas, Sugar, Coffee, Cotton, Copper, Orange Juice, Gold, Silver and Platinum market had a day of buoyancy, while the Oil, Cocoa, Wheat, 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 0.38% higher to see this Index registered at 408.55. The day starts with the U.S. Dollar tending softer and trading at 1.547 to Sterling and 1.148 to the Euro, while North Sea Oil is steady in early trade and is selling at 48.40 per barrel.

The London market and New York markets started the day with buoyancy yesterday and with both markets shrugging off the negative effects of light producer price fixation selling and attracting support, to take an upside track into the afternoon trade. The market maintained a positive track for most of the afternoon, but with the New York market starting to come under some selling pressure late in the day and to even take a late dip into negative territory. The London market continued to end the day on a positive note and with 61.3% of the gains of the day intact, while the New York market ended the day on a modestly positive note and with only 9.5% of the earlier gains of the day intact. This close while showing a degree of hesitancy after a week of renewed confidence within the markets is however accompanied by the inspiration of the weaker U.S. dollar and the positive nature of the coffee charts and one might expect to see a steady start due for early trade today against the prices set yesterday, as follows:

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

NOV 1631 + 21                                  DEC    134.65 + 0.30
JAN 1638 + 19                                   MAR    138.05 + 0.30
MAR 1652 + 18                                 MAY    140.05 + 0.25
MAY 1671 + 18                                   JUL    141.75 + 0.35
JUL 1691 + 18                                     SEP    143.50 + 0.45
SEP 1710 + 18                                     DEC   145.60 + 0.45
NOV 1729 + 18                                  MAR   147.75 + 0.55
JAN 1747 + 16                                   MAY   149.35 + 0.50
MAR 1765 + 16                                   JUL    150.95 + 0.35
MAY 1781 + 16                                   SEP    152.05 + 0.40