Coffee Market Report
The October 2021 to September 2022 arabica coffee harvest continues through Central and South America, where collectively Colombia, Mexico, Honduras, Guatemala, Nicaragua, Costa Rica and El Salvador are forecast to produce around 30.80 million bags washed quality arabica coffee to fuel exports to consumer markets in the 2021/22 coffee year.
Colombia remains the leading and largest quality washed arabica coffee producer within the region, that has potential to reach 15 million bags, has in the more recent past touched around million bags per annum production, with the October 2020 to September 2021 coffee year estimated to have come in at around 13.40 million bags, with a forecast that has been revised lower on the potential production for October 2021 to September 2022 coffee year from earlier estimates of around 14 million bags to be closer to at 13 million bags as the season has progressed toward harvest with heavy, seemingly La Nina related rainfall reportedly disrupting both quality of drying and full yield potential for the coming mid-year “Mitaca” crop.
Colombia’s Peso currency has shed 10.65% of its value against the US Dollar since the beginning of 2021, though inflationary cost increases are apparent, with the recent announcement from government of set wage increases, other increased and rising costs of imported inputs, which are contributing toward rising costs of production. The internal local arabica market remains strong even within the context of the supportive nature of the coffee futures market. The latest weather reports indicate that the drier weather to start this year, is bound to bring some relief for farmers to establish useful ground moisture retention for the first round of harvest to come for the October 2022 to September 2023 crop year, though in the interim there may be lower revisions for this crop and forecasts still to come, pending the success of the 2022 Mitaca harvest.
There are only four trading days ahead, for Vietnamese robusta coffee farmers and exporters before the country closes for the coming holidays that start on Tuesday 1st February. This in observance of the Tet New Year which will bring in the Year of the Tiger. The preparations ahead of the festivities for this year meanwhile are already underway. These annual Tet New Year holidays are due to start next week within Vietnam and are generally considered to see most commercial activity within the country closed for the duration of the celebrations. This is likely to limit trade activity along with producer price fixation selling volumes on the London futures market, to leave the rudder of the market, very much in the hands of the funds and speculative sectors of the market through to the end of next week.
The worldwide shipping congestion continues to disrupt supply chains globally, and in the coffee supply context new seasonal coffee harvests are underway in the America’s as well as Asia, with the accumulation of coffees not reaching consumer markets timeously. This is adding to the relatively firm sentiment within the futures terminal markets, with the front months in both markets reducing the capacity of exporters to hold stocks for longer periods, within the inverted structure as is presented. This circumstance is unlikely to show signs of easing while the congestion in supply chains from producer countries to consumer markets continues. This has added fuel to the speculative sector of the futures markets, with a short to medium term bullish weight for these directionally influential participants, of these markets who are less fundamentally tuned in to supply and demand factors, and instead interpret the status of consumer certified exchange coffee stocks as well as other publicly visible and monthly reported consumer stock reports, and the consecutive months of drawdowns in the USA Green Coffee Association reports as well as the daily certified stock reports, which latter have recorded drawdowns consistently since the beginning of July 2021, as bullish indicators.
The March 2022 to March 2022 contract arbitrage between the London and New York markets widened yesterday to register this 136.43 usc/Lb. This equates to 57.35% 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 13,905 bags yesterday, to register these stocks at 1,328,886 bags, with 95.45% of these certified stocks being held in Europe at a total of 1,268,420 bags and the remaining 4.55% being held in the USA at a total 60,466. Of this, a total 566,708 bags, or 42.65% of the coffees registered and stored in consumer country certified warehouses of the exchange, Brazil washed arabica, and a further 49.65% of these certified coffees, originating from Honduras. There was meanwhile no change to the number of bags pending grading to the exchange; to register 47,638 bags pending grading on the day.
It was a firmer day on the commodity markets yesterday, with investors await news from the US Federal Reserve Policy meeting and announcements anticipated later today. There are likewise concerns reflected within the markets surrounding the ongoing geopolitical tensions between Russia and the Ukraine. The Coffee, Corn, Wheat, Soybean, Gold, Platinum and Palladium markets ended the day on a firmer note, while the Sugar, Cocoa and Silver markets ended the day on a softer note. The day starts with the U.S. Dollar trading at 1.351 Sterling, at 1.130 the Euro and with the US Dollar buying 5.444 Brazil Real.
The New York and London markets started the day yesterday trading on a modest near to par softer note. The New York market was seen to gains support early in the day to see the market trend firmer into the late morning session while the London market followed suit in a more sedate manner. As the afternoon progressed both the New York and London markets started to add more value and quickly trigger buy stops along the way to accentuate the gains for the day.
The markets encountered resistance late in the day, which saw both the New York and London markets drop back form the early afternoon highs. This would see the New York market settle on a very firm note as the market continued to be driven by technical sentiment, while the London market followed suit albeit in a more sedate manner to also settle on a firmer note at the close.
The London market ended the day on positive note with 74.07% of the earlier gains of the day intact, while the New York market ended the day on a likewise positive note with 81.81% of the earlier gains of the day intact. This firmer close, albeit that the markets dropped back from the highs of the day, might inspire some degree of follow through momentum to possibly set the markets for a steady start to early trade today, against the prices set yesterday, as follows:
LONDON ROBUSTA US$/MT NEW YORK USC/LB.
MAR 2237 + 40 MAR 237.90 + 4.95
MAY 2203 + 37 MAY 238.15 + 4.90
JUL 2191 + 35 JUL 237.40 + 4.85
SEP 2187 + 32 SEP 236.45 + 4.75
NOV 2183 + 28 DEC 234.70 + 4.65
JAN 2181 + 27 MAR 233.65 + 4.50
MAR 2180 + 26 MAY 232.60 + 4.40
MAY 2175 + 27 JUL 230.95 + 4.25
