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I. & M. Smith (Pty) Ltd.

Coffee Market Report

12 Jun 2020

11th. June 2020.
The Coffee Exporters Association in Brazil Cecafé have reported that the countries coffee exports for the month of May were 23% lower than the same month last year, to total 2.68 million bags. Arabica exports for the month of May were 27% lower than the same month last year at a total of 2.19 million bags while Robusta exports were 5% higher than the same month last year, at a total of 484,064 bags. This they say has contributed to the country’s cumulative coffee exports for the first eight months of the October 2019 to September 2020 Coffee year to be 22.59 million bags.

The respected U.S. Department of Agriculture Foreign Agriculture Service USDA have forecast that the next Vietnam crop that is due to start being harvested in October, shall be 3.51% or 1,100,000 bags lower than the last crop, to total 30.2 million bags. This crop they foresee, to be made up from 29.1 million bags of robusta coffees and 1.1 million bags of arabica coffees and added to this, they foresee that carryover stocks from the present coffee year shall add 4.58 million bags of coffee, to confirm continued good supply into the next October 2020 to September 2021 coffee year.

Of this new crop, the forecast is that Vietnam will export 2.13% or 500,000 bags more than the previous marketing year at a total of 24 million bags of green coffee. Domestic consumption in Vietnam is made up of a combination of local and imported soluble products as well as local and imported roast and ground coffee products and is forecast by the USDA to be in the region of 3,200,000 bags in the October 2020 to September 2021 coffee year, compared to the consumption figure of 3,100,000 bags or 3.23% higher than the same period last year.

This report in terms of both the official Vietnam new crop forecast and many trade and industry forecasts, would appear to be quite ambitious. As most forecast a relatively modest dip in coffee production for the new coffee crop in Vietnam, with indications that it might struggle to exceed 29 million bags. With indications that Robusta coffee production might only be approximately 28 million bags and arabica coffee production, at around 1 million bags. One might anticipate that as it is still relatively early in the year before harvest and as we get closer to and into the harvest there will be greater transparency on the question of overall new crop production.

The September to September contracts arbitrage between the London and New York markets narrowed yesterday; to register this at 41.72 usc/Lb. This equates to 42.33% price discount for the London Robusta coffee market.

The Certified washed Arabica coffee stocks held against the New York exchange were seen to decrease by 36,661 bags yesterday; to register these stocks at 1,697,037 bags, with 91.2% of these certified stocks being held in Europe at a total of 1,547,485 bags and the remaining 8.8% being held in the USA at a total of 149,552. There was meanwhile a smaller in number increase by 29,855 bags to the number of bags pending grading for this exchange; to register these pending grading stocks at 54,344 bags.

It was a mixed day on the commodity markets yesterday, as the US Dollar registered a softer day, slipping to a low last seen three months ago, against a basket of other currencies. The leading in influence, Oil markets registered a rebound, and a positive close on the day for safe-haven Gold. The rest of the commodities board registered a mixed day, with Sugar, Wheat, Soybean and Silver markets finishing in positive territory. It was a softer close on the day for Cocoa, Coffee, Corn, Platinum and Palladium markets. The Reuters Equal Weight Continuous Commodity Index that is related to 17 markets is 0.056% higher; to see this index registered at 365.56. The day starts with the U.S. Dollar steady, trading at 1.2665 to Sterling, at 1.135 to the Euro and with the US Dollar buying 4.973 Brazilian Real.

The London and New York markets started the day yesterday trading close to par on a modest negative note, both markets maintained this soft track into the early afternoon trade. As the afternoon progressed the London and New York markets started to attract buying support to trade in modest positive territory for the early afternoon trade, this support was short lived as the market fell from the highs of the day after attracting some degree of selling pressure to see the new York market close on a negative note for the day, while the London market rallied late in the day to close on a near to par positive note for the day.

The London market ended the day on a positive note and with 33.3% of the earlier gains of the day intact, while the New York market ended the day on a negative note and with 75% of the earlier losses of the day intact. This mixed close does little to inspire confidence and one may expect the markets are due for little better than a hesitant steady start to early trade today, against the prices set yesterday, as follows:

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

JUL   1224 + 3                            JUL     96.75 – 1.05
SEP   1253 + 6                            SEP     98.55 – 1.15
NOV 1269 + 3                            DEC  100.80 – 1.05
JAN  1287 + 2                            MAR 102.95 – 1.15
MAR 1306 + 1                           MAY 104.40 – 1.15
MAY 1326 Unch                       JUL    105.85 – 1.10
JUL   1347 Unch                       SEP    107.10 – 1.10
SEP   1361 Unch                       DEC   108.90 – 1.05