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 increase their net long position by 1.39% within this market over the week of trade leading up to Tuesday 16th January 2024; to register a new long position at 42,728 Lots. The longer term in nature Index Fund sector of this market decreased their net long position by 7.49% within the market, to register a new net long position of 54,787 Lots on the day.
Over the same week, the Non-Commercial Speculative increased their net long position by 16.18% within the market over the week of trade leading to Tuesday 16th January 2024: to register a new net long position of 29,253 lots, which is the equivalent of 8,293,096 bags. This net long position has most likely been increased further following the period of firmer trade that has since followed. Within the coffee markets and contributing toward speculative sentiment are the prospects of the new Brazil crop that is developing in Brazil. This while coffee transactional flow in the current season progresses in an environment of port congestion and developing space constraints. The weather and potential production news to come from Brazil has met with some talk that the excessively hot weather experienced in the northern Bahia Conillon growing region may have deterred cherry development in some areas, although the extent of any damage, if any, may be more related to size of bean in production terms, as the robusta crop is normally advanced in comparison to the main arabica growing areas, while field surveys are historically carried out during in the first month of the calendar year, one might anticipate further projections and Brazil 2024/25 crop revisions to soon start to come to the fore. The weather is reported to be conducive meanwhile as main coffee districts across the Brazil coffee belt have reported adequate rains thus far for the month of January. Weather forecasters are predicting further rainfall to continue to fall over the course of the next week, with temperatures forecast to hold steady in the mid to high twenties over the same time. The new Conillon Robusta crop readies to begin start harvest in a few months’ time, as the biennial bearing arabica coffee crop continues to develop, a continuation of the conducive summer rain weather will be required. The current 2023/24 Brazil crop is flowing to consumer markets albeit within logistically constrained environment. Within the country, which is in coffee consumption terms, second only to largest individual consumer nation, USA., the development of the firm robusta market may see local roasters lean more toward lower arabica as the arbitrage narrows, while for the most part, well financed Brazil producers hold back from volume sales, and are measured and selective sellers. Brazil as the leading producer and exporter of coffee to consumer markets, has recorded exports at 23 million bags exported in the first six months of their coffee year, an improvement in export performance of 25.99% against the same time in the 2022/23 season. The news from Vietnam meanwhile is not much altered, this largest robusta producer continues to process the harvest which is set to fuel consumer markets for the October 2023 to September 2024 coffee year. This largest robusta producer and exporter, is anticipated to produce a median estimate of 28 million bags in this coffee year. Internally, preparations are soon to be underway ahead of the Tet Lunar New Year celebrations, which will be observed on the 10th February this year, and bring in the year to the Dragon. Whereas the preparations for the coming festivities would in the past, traditionally encourage farmers and internal traders to release coffee for cash ahead of the festivities, the circumstances of a firm robusta market continue to inspire slow internal release of coffee and limited producer selling activity, which may continue to see commercial activity within Vietnam sluggish as producers hold out for what they perceive to possibly be increased returns to come. The challenges being experienced within consumer markets as the first month of the new calendar year draws to a close, is reflected in the volatility of the futures markets. Consumer market inventory that is generally slow to be reported by the relevant authorities, and privately held, are not always readily published however where these are available, these are thought to be collectively and comparatively year on year relatively low. The development of positive interest rates in these economies battling with post pandemic inflation, has had an impact on financial decisions and within the coffee industry, inventory management, that acting alone might have been manageable, but with the added hurdle of an inversion in the futures markets accentuating the limitation of unsold stock held within these consumer markets. The advent of geopolitical tensions in the Middle East and the decision by key shipping lines due to security concerns, to no longer route their vessels through the major thoroughfare Suez Canal has reflected acutely at the outset, with the above factors of tight inventory of specifically robusta coffee, already in play. The news on logistics front is that a number of the world’s major shipping lines have continued with their re-route policy to set their vessels via the Cape of Good Hope on Africa’s southernmost tip, since mid-December, with the addition of two to three weeks to the transit and arrival lead-times to consumer markets. The ripple effect of this altered shipment course is not only the already implemented, overnight addition to freight costs for cargo to consumer markets, also the possibility that equipment shortages may build as the seafaring network of transhipment routes and feeder ports, might similarly experience unscheduled constraints and turnaround times. The interruption however disruptive in the immediacy of the shipping lane routing alteration, is nevertheless purpose driven and an intentional situation, which quite unlike the comparatively sporadic challenges experienced by international trade through the pandemic related years. This would lead one to anticipate that there is a likelihood that supply chains across the globe will stabilise in the coming months, as international trade learns to adjust and accommodate the extended lead times, to consumer markets. News has come to the markets that the Intercontinental Exchange ICE, will raise the delivery premiums for certain types of arabica coffee that are already registered for delivery to the certified warehouses of the exchange. This increase is set to take place following the March 2026 contract expiry, thus some time ahead of these increases for coffees that are delivered to the exchange, to be implemented. The price differential increase will see Colombia, Guatemala, Costa Rica and Kenya coffee, the increase is reported to be plus 10.00 usc/Lb., and plus 5.00 usc/Lb., whereas the larger participants Honduras and Brazil semi-washed, are not reported to see changed to the prevailing delivery price differentials of level money for Honduras and minus 6.00 usc/Lb., for Brazil semi-washed arabica. The established premiums that prevail for arabica coffees that are tenderable to the exchange in place at set levels for several years and the announcement of an increase for these four countries will no doubt be welcomed, for what is historically a secondary home for arabica coffee that historically sets the low bar for coffees within specification and that are tenderable to the exchange warehouses in consumer countries and traditionally in times of surplus. The levels itemised by ICE are quite far removed from prevailing supply and demand determined differentials and in the instance of Guatemala, Costa Rica and Kenya, modest and somewhat niche in consumer markets, as well as in annual production terms, this while Colombia leads the way as the largest in production terms quality washed arabica producer to consumer markets. The Certified washed Arabica coffee stocks held against the New York exchange were seen to increase by 870 bags yesterday, to register these stocks at 253,978 bags, with 97.85% of these certified stocks being held in, Europe at a total of 248,527 bags and the remaining 2.15% being held in the USA at a total 5,451 Bags. Of this, a total 68,785 bags, or 27.08% of the coffees registered and stored in consumer country certified warehouses of the exchange, are Brazil washed arabica, and a further 51.85% of these certified coffees, originating from Honduras. There was, meanwhile, a decrease of 663 bags in the number of bags pending grading to the exchange; to register 38,399 bags pending grading on the day. The March 2024 to March 2024 contract arbitrage between the London and New York markets widened yesterday, to register this at 46.19 Usc/Lb. This equates to 24.03% price discount for the London Robusta coffee. It was a volatile day on the commodity markets yesterday, as the US Federal Reserve and the European Central Bank resisted conclusive interest rate statements, along with weaker economic signals coming from China. The escalation of geopolitical tension continues to influence volatility within international markets. The US Dollar registered a softer day. The Coffee, Corn, Soybean and Wheat markets ended the day on a positive note, the Cocoa market rally modestly softer, and Sugar, Gold, Silver, Palladium and Platinum markets ended the day in negative territory. The day starts with the U.S. Dollar trading at 1.272 Sterling, at 1.089 the Euro and with the US Dollar buying 4.99 Brazil Real. The New York market started the day yesterday pressured lower by selling early in day, while the London market started the day continuing through momentum from the close on Friday. This saw the support start to build to see the markets moving above par throughout the remainder of the morning session. The New York market registered a firmer trajectory, gaining support throughout the session, with the London market following suit. This saw the market track upward as speculative buying support returned to the floor. As the afternoon progressed, the New York and London markets continued to gain momentum, both markets continued to move in a firmer direction accentuating the gains for the day. The upward momentum brought sellers back to the floor at the top of the day, and both New York and London markets hit a ceiling very late in the day to marginally limit the sessions gains. The New York market settled near to the highs of the day on a very firm note, while the London market followed suit to likewise settle on a very firm note, near to the highs of the day. The London market ended the day on a positive note with 91.09% of the earlier gains of the day intact, while the New York market ended the day on a likewise positive note with 88.75% of the earlier gains of the day intact. This follow through firm close for the markets, with both the New York and London markets tracking upward throughout the session to settle near to the highs, to see the markets set for a steady start to early trade today, against the prices set yesterday, as follows: LONDON ROBUSTA US$/MT NEW YORK USC/LB. MAR 3220 + 92 MAR 192.25 + 7.10 |
