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

 

I. & M. Smith (Pty) Ltd.

Coffee Market Report

The seasonal rains would ordinarily end around mid-October in Vietnam, to allow early November harvesting to start and producers to adequately patio dry their harvested coffee cherries. With mixed forecasts coming to the fore in terms of the size of this new crop, most forecasts still look towards another large crop for the world’s largest Robusta producing country, forecast at around 30 million bags. The forecasts are made up of approximately 29 million bags of Robusta coffee and 1 million bags of Arabica Coffee. The easing of movement restrictions within this country meanwhile, should see shipments to consumer markets being to register month to month increases in export volumes, although the circumstances surrounding container availability, equipment and vessel space resulting in increased rates due to these demand and shortfall circumstances, remain.

The Brazil Real has registered a lower week against the US Dollar, which would traditionally encourage increased selling activity within the interior of Brazil, as coffee producers take advantage of the weaker currency against US Dollar based sales. Despite this, the market conditions reported from within the interior and with the new 2021 harvest completed, is that despite the positive factors for producers, of both a higher futures market value and the softer Brazil Real against the US Dollar, there is limited and measured producer seller activity into the markets. This with the new flowering for the next Brazil arabica crop that will be harvested mid-2022, seasonally dependent on the spring and summer rainfall, to set this next crop. The weather forecasts are for a continuation of rains that have been reported within the vast areas of the Brazil arabica coffee growing areas which shall be required to continue through the next three months, to adequately set the cherries for this next biennial bearing crop to come.

The worldwide restrictions on container availability, space on cargo vessels, sudden alteration to shipping routes, blank vessel sailings, through a pandemic related economic environment, has seen all shipping lanes continue to present severe bottlenecks throughout. International consumer markets particularly those dependent upon importation of goods, whether commodities or finished product have been negatively impacted, while apart from the exponentially increased freight demands that have stemmed from shortfall of equipment, the consumer, non-producer, markets have had to pivot from prior years’ of inventory policies that were traditionally pinned on ‘just in time’ policies, toward ‘just in case’ inventory cover view. This, in addition to the need to adopt extended lead times, import region dependant, could be upward of three months.

The availability within the largest coffee consumer countries meanwhile, of coffee stocks being held in consumer warehouses are providing some degree of buffer for the delays that are being experienced and these coffee stocks accessible in the event of the need to take additional spot cover. Aside from privately held coffee stocks in consumer markets, this includes the reported New York arabica and London robusta certified stocks, which have registered larger drawdowns over the past few weeks, in tandem with the traditional increase of northern hemisphere winter roasting and the supply restraints in coffee deliveries from origin, due to the ongoing shipment disruptions. These Certified coffee stocks are traditionally a visible indicator for the speculative sector of the coffee markets, and large drawdowns that have been registered are likely to support a bullish sentiment for this sector of the market, in the short to medium term, should the daily certified coffee stocks drawdown trend, continue.

The November-to-December contract arbitrage between the London and New York markets widened yesterday to register this at 101.73 usc/Lb. This equates to 51.40% price discount for the London Robusta coffee market. This wide arbitrage will likely be viewed by price sensitive roasters as an attractive alternative discount for robusta against the comparatively higher value arabica coffee.

The Certified washed Arabica coffee stocks held against the New York exchange were seen to decrease by 34,700 bags yesterday, to register these stocks at 1,938,316 bags, with 95.33% of these certified stocks being held in Europe at a total of 1,847,809 bags and the remaining 4.67% being held in the USA at a total 90,507 bags. Of this, a total 1,058,720 bags, or 54.62% of the coffees registered and stored in consumer country certified warehouses of the exchange, Brazil washed arabica, and a further 40.10% of these certified coffees, originating from Honduras. There was meanwhile an increase of 9,407 bags to the number of bags pending grading to the exchange; to register 33,944 bags pending grading on the day.

It was a firmer day on the commodity markets on yesterday, the US Dollar gained further ground against a basket of other currencies, ahead of monthly US jobs data due to be released. The Sugar, Cocoa, Coffee, Corn, Soybean, Silver, Palladium and Platinum markets ended the day on a positive note, while the Wheat and Gold markets ended the day on a softer note. The day starts with the U.S. Dollar trading at 1.36 Sterling, at 1.158 the Euro and with the US Dollar buying 5.518 Brazil Real.

The New York and London markets started the day yesterday trading on a firmer note, the markets gained momentum early before hitting some resistance during the early morning session. The markets would quickly gain support during the late morning session to see both the New York and the London markets trend firmer. As the afternoon progressed the New York market continued to trend on a firmer path while the London market hit a ceiling limiting the gains for the day. Late in the afternoon session saw both the New York and the London markets settle on a firmer note at the close, with the New York market retaining most of the gains of the day while the London market settled near to unchanged for the day.

The London market ended the day on a modest positive note and with 10% of the gains of the day intact, while the New York market ended the day on a likewise positive note and with 65.44% of the gains of the day intact. This follow through firmer close might inspire some degree of confidence, albeit that the markets dropped back from the earlier in the day highs, to possibly set the markets for a follow through steady start to early trade today, against the prices set yesterday, as follows:

LONDON ROBUSTA US$/MT NEW YORK USC/LB.

NOV   2119 + 3                          DEC  197.90 + 4.45
JAN    2116 Unch                       MAR 200.80 + 4.40
MAR  2076 + 4                          MAY  201.90 + 4.35
MAY  2055 + 5                          JUL    202.40 + 4.25
JUL    2049 + 6                          SEP    202.70 + 4.25
SEP    2052 + 7                          DEC  203.00 + 4.20
NOV   2056 + 7                         MAR 203.25 + 4.15
JAN   2062 + 7                           MAY 203.45 + 4.10