Coffee Market Report
The latest Commitment of Traders report from the New York arabica coffee market has seen the shorter term in nature Managed Money fund sector of this market decrease their net long position within this market by 1.54% over the week of trade leading up to Tuesday 2nd. November; to register a new net long position 51,543 lots. Meanwhile the longer term in nature Index Fund sector of this market decrease their net long position within the market by 2.96%, to register a net long position of 54,524 Lots on the day.
Over the same week, the Non-Commercial Speculative sector of this market decrease their net long position within the market by 4.45% to register a new net long position 42,864 lots, which is the equivalent of 12,151,754 bags. This net long position has most likely been little changed following the period of mixed but overall sideways trade that has since followed.
The Ivory Coast as west Africa’s leading robusta coffee producer, have reported that their coffee exports for the month of September were 49,617 bags or 73.01% lower than the same month last year, at a total of 18,333 bags. This has contributed to their country’s cumulative coffee exports for the October 2020 to September 2021 coffee year to be 829,550 bags or 57.55% lower than the same period last year, at a total of 611,983 bags.
The Brazil biennial bearing lower July 2021 to June 2022 crop that had mostly completed harvest at the time of the frosts in Brazil and for the most part unaffected, is currently being exported. The frost events that triggered the futures markets upward surge in value, related to market concerns of the potential impact for longer term supply for the next Brazil upcycle crop anticipated for July 2022 to June 2023 coffee year. This rally likewise fuelled by the leading in influence and volume speculative and fund investor participation, triggering strops along the way.
The weather throughout the Brazil coffee growing areas has by most reports, been conducive to the setting of the Brazil crop to come in 2022, although there is no doubt that potential yield has been affected by the mid-year frosts. There is nevertheless a positive outlook for the crop to come, which with the ground soaking rains and good dispersion would likewise indicate conducive conditions for extension growth, necessary to support the following 2023/24 flowering.
The non-producer coffee consumer markets have registered steady coffee demand through pandemic related conditions, the hardest hit out of home HORECA outlets, registering sharply negative results although in northern hemisphere consumer markets offset to some degree, by online and retail sales. The gradual easing of restrictions and movement in many countries may continue to see the out of home HORECA markets show signs of gradual rebound, though recovery is slow.
Aside from weather developments in key producer countries, Brazil, Vietnam, Colombia, there is some influence to the prevailing value in the New York and London markets, in the current, severe restrictions on movement of cargo, shipments, space on vessels, container and equipment limitations, throughout the globe. This supply chain chokehold that is now widely reported in mainstream media, is a phenomenon that has developed to near crisis proportion in some areas. Within the coffee sector the delays to ship from producer countries, has led to heightened demand for existing consumer stocks, which with the sequential drawdown reported serves as speculative affirmation to underscore the demand side view, and boost upward sentiment in the already buoyant coffee futures markets.
News has been filtering to the markets of producer defaults within key producer countries, where it is common practice for producers to sell a percentage of their crops on a forward basis. This mechanism may be for one or two or many, years in advance of the crop, traditionally serves to provide producers some financial security for a portion of their coffee crops year on year. The extent of default is not known, though indicated to be nominal in the overall effect, whereas the cost in many aspects to include reputational as well as financial damage to producers could be pronounced, as forward committed commodity trade houses have been reported to be opting to pursue legal action where deemed necessary.
The January 2022 to December 2021 contract arbitrage between the London and New York markets narrowed yesterday to register this at 101.40 usc/Lb. This equates to 50.79% 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 8,132 bags yesterday, to register these stocks at 1,841,369 bags, with 95.55% of these certified stocks being held in Europe at a total of 1,759,417 bags and the remaining 4.45% being held in the USA at a total 81,952 bags. Of this, a total 953,534 bags, or 51.78% of the coffees registered and stored in consumer country certified warehouses of the exchange, Brazil washed arabica, and a further 42.16% of these certified coffees, originating from Honduras. There was meanwhile a decrease of 8,809 bags to the number of bags pending grading to the exchange; to register 3,242 bags pending grading on the day.
It was a softer day on the commodity markets yesterday, the US Dollar lost ground to a basket of other commodities ahead of key US inflation data that may give an indication on an interest rate hike timeline. The Sugar, Cocoa and Wheat markets ended the day on a firmer note, while the Coffee, Corn, Soybean, Gold, Silver, Platinum and Palladium markets ended the day on a softer note. The day starts with the U.S. Dollar trading at 1.357 Sterling, at 1.160 the Euro and with the US Dollar buying 5.544 Brazil Real.
The New York market started the day yesterday trading on a modest firmer note, while the London market started the day yesterday trading on a modest softer note. Both the New York and the London markets gained momentum early to see both markets hit a ceiling for the day’s trade limiting the gains. As the afternoon progressed the markets would hesitantly trade south of par before coming under pressure from long liquidation selling activity to accentuate the losses for the day’s trade. The markets rebounded slightly from the lows of the day to recover some of the earlier in the day losses late in the day, to see both the New York and London markets settle on negative notes at the close.
The London market ended the day on a negative note and with 68.18% of the losses of the day intact, while the New York market ended the day on a likewise negative note and with 91.76% of the earlier losses of the day intact. This follow through softer close does little to inspire confidence, with both markets settling near to the lows of the day, one might think that the markets are due for little better than a hesitant start to early trade today, against the prices set yesterday, as follows:
LONDON ROBUSTA US$/MT NEW YORK USC/LB.
JAN 2166 – 15 DEC 199.65 – 3.90
MAR 2118 – 13 MAR 202.45 – 3.95
MAY 2093 – 13 MAY 203.35 – 3.80
JUL 2083 – 14 JUL 203.65 – 3.70
SEP 2076 – 15 SEP 203.80 – 3.65
NOV 2078 – 16 DEC 204.05 – 3.55
JAN 2085 – 16 MAR 204.35 – 3.50
MAR 2083 – 16 MAY 204.65 – 3.50
