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 marginally decrease their net long position by 0.88% within this market over the week of trade leading up to Tuesday 6th February 2024; to register a new long position at 48,180 Lots. The longer term in nature Index Fund sector of this market decreased their net long position by 2.36% within the market, to register a new net long position of 53,587 Lots on the day.
Over the same week, the Non-Commercial Speculative increased their net long position by 2.43% within the market over the week of trade leading to Tuesday 6th February 2024: to register a new net long position of 34,940 lots, which is the equivalent of 9,905,335 bags. This net long position has most likely been marginally increased following the period of mixed but overall firmer trade that has since followed.
The forecasts from the U.S. Governments National Weather Service’s Climate Prediction Centre maintain the prediction for a 55% potential for a La Niña weather phenomenon to develop later in the year, this following one of the more notable El Niño weather patterns on record, which is forecast to wane through the months ahead, with a La Nina forecast on the horizon. The strength and timing of these weather patterns that are related to the warming or cooling of notably the Pacific Ocean temperatures, in the event of La Niña this is a cooling phenomenon that generally brings about accentuated drier weather conditions in regions of southern continent America and excessive rainfall in equatorial areas which can impact the Pacific Rim countries.
The prospects of a La Niña weather phenomenon developing toward the latter half of the year is yet to be determined, while the timing and strength of these cycles that are seemingly becoming more frequent than in past decades and do vary in impact. The biennial seasonal coffee years of La Niña impact in 2021 and 2022 brought drier weather to Brazil and excessive rainfall to Colombia, when the development, timing and strength of the climatic event, negatively impacted production from these two leading arabica producer countries, which was emulated in varying degrees in other coffee producer countries across the Pacific Rim, the tropics and equatorial coffee producer countries. Coffee farming continues to be a non-commercial long-term crop, collectively, although statistics vary, indicating a median of around 75% of an average output of 170 million bags of coffee, produced by smallholder farmers in rural environments that are often complex in topographies, exacerbated by a lack of internal supportive infrastructure, limited affordability and resources to counter extreme weather conditions.
The collective decision by the world's major shipping lines to reroute vessels from the Red Sea and Suez Canal areas, is leading to extended transit times and additional freight costs to consumer markets. Elsewhere, South Pacific and Oceania shipping lanes are still constrained by the low water levels in the Panama Canal, a route that is reported to account for around 40% of container traffic to the USA. These constraints and delays are contributing to the prevailing volatility in the coffee markets, in the context of the already lower than average consumer market inventory position.
Coffee consumption within South Korea has been reported to see overall coffee imports during 2023 reaching 3.22 million bags or 3.30% lower than the previous year, according to Korean Customs Services. These imports primarily made up of 90% green bean raw material, with the remainder roasted finished product. This country has seen steady growth in consumption over the last six years, reaching a peak of 3.33 million bags during the 2022 calendar year. It is reported that the growth in consumption is being led by a developing coffee shop culture, with a large percentage of the population living in urbanised areas.
According to the Coffee Exporters Association in Brazil Cecafé, Brazil exported 1,480,011 bags or 278.64% more coffee to China from January 2023 to December 2023, when compared to the 390,879 bags exported during the same period in the previous year. This consumer market which is showing signs of increasing coffee consumption from a very limited baseline, has registered growth that is now indicated to be somewhere in the region of 8.50% per annum. Although economic data to come from the country following an extended three-year pandemic related lockdown, is indicated to be a sluggish path of recovery, the reported increase in coffee imports to this country, with an internal coffee production set at around 1.80 million bags on seasonal average, harbours the second largest population on the planet, positive coffee consumption growth is likely welcome news to the markets.
The coffee futures markets have some days to go, ahead of the first notice day in New York on 21st February, and 26th February in London. The volatility in these markets continue to prevail, with the backwardation of the prompt months reflecting a squeeze on availability in consumer countries in view of shipping lane supply disruptions. The lack of producer activity may remain muted through the first half of this week as the celebrations in both Brazil and Vietnam, which account 52% of coffee exports to consumer countries, are off the field of play today. Brazil is observing Carnival celebrations and Asian countries China, Indonesia, Malaysia, Singapore, South Korea, Taiwan and Vietnam observe New Year celebrations.
The Certified washed Arabica coffee stocks held against the New York exchange were seen to decrease by 325 bags yesterday, to register these stocks at 297,325 bags, with 98.43% of these certified stocks being held in, Europe at a total of 292,665 bags and the remaining 1.61% being held in the USA at a total 4,660 Bags. Of this, a total 104,007 bags, or 34.98% of the coffees registered and stored in consumer country certified warehouses of the exchange, are Brazil washed arabica, and a further 40.27% of these certified coffees, originating from Honduras. There was meanwhile a 8,320 bags increase to the number of bags pending grading to the exchange; to register 38,854 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 44.83 Usc/Lb. This equates to 22.92% price discount for the London Robusta coffee.
It was a mixed day on the commodity markets yesterday, as investors focus on the news to come this week for directional indicators, the US Consumer Price Index data due out later today alongside fresh economic data due to be released in Britain and EU markets which may provide cues on fiscal policy direction in these markets, to come in March. The Cocoa, Corn, Soybean, Silver, Platinum and Palladium markets ended the day on a positive note, while the Coffee, Sugar, Wheat and Gold markets ended the day on a softer note. The day starts with the U.S. Dollar trading at 1.261 Sterling, at 1.076 the Euro and with the US Dollar buying 4.954 Brazil Real.
The New York market started the day yesterday trading to the south of par on a softer note, while the London market started the day trading on a firm note carrying through momentum from the close on Friday. The markets oscillated around par for the remainder of the early morning session, before attracting some degree of selling pressure and both New York and London markets fell below par, to trend softer during the morning session. As the afternoon progressed, speculative selling returned in volume to the New York floor to trigger stops along the way. The floor established and buyer support returned to rebound from the earlier lows and recover all the earlier losses. The London market followed suit to drop lower, pressured by technical selling activity. The New York market, trading in a large range on the day, was pressured lower late in the day as sellers returned to the floor, this would see the market settle on a modest softer note at the close. The London market followed suit to likewise settle on a softer note at the close.
The London market ended the day on a negative note with 56.82% of the earlier losses of the day intact, while the New York market ended the day on a likewise modest negative note with 16.47% of the earlier losses of the day intact. This softer close for the markets, albeit that the New York market recovered most of the earlier losses and the London market recovered some of the earlier losses of the day to settle in softer territory, might indicate some degree of direction and one might therefore 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.
MAR 3324 – 25 MAR 195.60 – 0.70
MAY 3192 – 25 MAY 191.15 – 0.35
JUL 3104 – 11 JUL 189.85 – 0.35
SEP 3027 – 11 SEP 189.75 – 0.15
NOV 2959 – 2 DEC 189.60 – 0.05
JAN 2913 + 2 MAR 189.65 + 0.05
MAR 2888 + 2 MAY 190.10 + 0.25
MAY 2871 + 2 JUL 190.20 + 0.45
