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 decrease their net long position by 4.94% within this market over the week of trade leading up to Tuesday 2nd July 2024; to register a new long position at 60,955 Lots. The longer term in nature, Index Fund sector of this market increased their net long position by 1.93% within the market, to register a new net long position of 49,012 Lots on the day.
Over the same week, the Non-Commercial Speculative decrease their net long position by 6.06% within the market over the week of trade leading to Tuesday 2nd July 2024: to register a new net long position of 44,821 lots, which is the equivalent of 12,706,555 bags. This net long position has most likely been little changed following the period of mixed but overall firmer trade that has since followed.
As the Brazil harvest progresses, market data focus is on the supply and demand estimates, following the forecasts that have already been absorbed by the markets for global coffee production for the current October 2023 to September 2024 coffee, which is put at 171.52 million bags, this number 4.10% higher than the previous 2022/23 year. This against a median estimate forecast for global coffee demand for the current October 2023 to September 2024 coffee year of 171.54 million bags, this number 1.14% higher than the previous 2022/23 year.
The overall supply and demand scenario for the upcoming October 2024 to September 2025 coffee year, is with the new Brazil 2024/25 coffee year harvest underway, shifting from earlier forecasts of a prospectively larger production year to come, to now reflect a production year that is in Brazil likely on par with 2023/24 coffee year. This while there is evidence of a continuation of the already prevalent supply shortfall within the robusta segment that is well absorbed by the markets, the inclement weather news from Vietnam as the 2024/25 coffee crop sets on the trees, has sparked a fresh round of speculative interest. Thus, the overall global production forecast for the coming year is likely to be a marginal surplus in production versus demand, with pipeline stocks and inventories within producer countries low, as well as lower inventories that are held in high interest rate and inverted price structure consumer markets, through the past few turbulent years.
Within in a winter weather environment, the earlier forecasts ahead of the current Brazil crop that is currently in harvest, for this 2024/25 coffee crop that was anticipated to potentially provide a boost to worldwide supply from an anticipated arabica surplus, has seen the flow from the Brazil interior now that the harvest is coming in, have potential to be lower than initially forecast due to the erratic nature and quality of deliveries; with a caveat that this largest coffee producer country has the financial capacity to withhold sales.
While Brazil, Colombia, Peru, Indonesia, Uganda and smaller producers in East and Central Africa are in harvest now to supply the 2024/25 coffee year. The main harvest from Colombia, Central America, Mexico, Vietnam, India, China, are all set to seasonally start harvest in the fourth quarter of the year. These latter coffee countries have a collective export potential of 26 million bags arabica coffee, 34 million bags robusta coffee, while collectively Africa contributes around 12 million bags in both arabica and robusta export potential. Looking ahead, and unless resolutions are made ahead of time, EUDR regulation compliance looms, which could add another layer of complexity to consumer market demand conditions by the latter quarter of the year, that is met with the start of the main coffee harvest in many of these countries. The projection for the coffee year October 2024 to September 2025 is for global production to reach an estimated 174.50 million bags and for global coffee demand in the region of 172.50 million bags.
The overall balance of the supply and demand is tipped toward a more widely accepted view that weather volatility or any other as yet unforeseen climatic event, particularly in key producer countries, Brazil, Vietnam, Colombia and Indonesia, which collectively produce on average 120 million bags and export on average 80 million bags of coffee to consumer markets, will be closely monitored ahead of the next coffee production cycle year 2025/26 to boost already low inventories and support worldwide consumer demand through the 2025/26 coffee year.
Consumer market trends tend to take a little longer to come to the fore, and for the moment the more mature coffee consumer markets in the northern hemisphere point toward steady consumption patterns, rather than growth. This, while in both mature and new coffee consumer markets, access to market and volume through price, is a key criterion.
Within Brazil, weather conditions are forecast to remain cool and dry for the week ahead, with no anticipated unusually low temperatures for the Brazil coffee regions predicted within the next fortnight. The next full moon is due on the 21st of July, historically this marks the most threatening time for cold weather risk in the Brazil coffee districts, if accompanied by any as yet unforeseen, cold front.
The Intercontinental Exchange (ICE) released a notice yesterday, to increase margin requirements for certain arabica coffee futures by as much as 11.40%, coinciding with a significant price rally of over 6.60% during the day’s trade yesterday. The ICE announced that the initial margin requirement for arabica futures contracts expiring in September 2024 will rise from $6,000.00 to $6,645.00 per contract, marking a 10.45% increase. For contracts expiring in March 2025, the requirement will increase from $5,490.00 to $6,120.00 per contract, an 11.4% increase. The ICE has also raised the margin requirements for further out futures months incrementally, effective from the open of trade today. This action from the ICE is typically seen when an assets value increases significantly to mitigate trading risk and try to reduce market volatility, in an effort to reduce liquidation pressure for traders holding large short positions.
The Certified washed Arabica coffee stocks held against the New York arabica market were seen to decrease by 5,330 bags yesterday, to register these stocks at 803,319 bags, with 98.81% of these certified stocks held in, Europe at a total of 793,726 bags and the remaining 1.19% being held in the USA at a total 9,593 Bags. Of this, a total 411,967 bags, or 51.28% of the coffees registered and stored in consumer country certified warehouses of the exchange, are Brazil washed arabica, and a further 15.85% of these certified coffees, originating from Honduras. The pending grading stocks were seen to decrease by 5,350 bags yesterday; to register 27,764 bags pending grading on the day.
The September 2024 to September 2024 contract arbitrage between the London and New York markets widened yesterday, to register this at 39.76 Usc/Lb. This equates to 15.91% price discount for the London Robusta coffee.
It was a mixed but overall firmer day on the commodity markets yesterday, with investor focus shifting to the consumer price index CPI data due to be released tomorrow in the U.S.A. The Federal Reserve Chair policy speech to start the week possibly stirring fresh bullish sentiment in the likelihood for a an interest rate cut to come in the last quarter of the year. It was a strong close for Coffee, and positive close in the Cocoa, Corn, Wheat, Gold and Silver markets, which ended the day on a firm note. The Soybean, Sugar, Palladium and Platinum markets ended the day on a negative note. The day starts with the U.S. Dollar trading at 1.279 Sterling, at 1.081 the Euro and with the US Dollar buying 5.418 Brazil Real.
The New York market started the day yesterday trading on a modest softer note, while the London market started the day trading on a firmer note carrying through momentum from the close on Monday. The London market quickly gained momentum gapping higher at the outset of the early morning session, in limited volume. The New York market was slower to react and having set a higher level, traded either side of par for the very early morning session before building support into the mid-morning. The volume in both New York and London markets modest and sellers absent at the top, in technical trade, a choppy session that trended upward in a void of selling activity to trigger stops along the way as the day progressed. The arrival of the America’s at the start of their business day brought fresh volume to New York to accentuate the technical day and push buy stops along the way, speculative short covering activity saw the New York market gain ground quickly throughout the afternoon session, with the London market following suit to make significant gains throughout the afternoon session. The New York market continued the upward momentum before being capped very late in the day, to see the market marginally drop back and settle on a very firm note at the close. The London market followed was also seen to settle on a very firm note at the close, with most of the earlier gains of the day intact.
The London market ended the day on a positive note with 89.66% of the earlier gains of the day intact, while the New York market ended on a likewise positive note, with 86.63% of the earlier gains of the day intact. This follow through firmer close for the markets, might indicate some degree of support and direction with both the New York and London market gaining momentum throughout the session to settle near to the highs of the day in good volumes of trade, with some of the Brazil market players removed from the market for the day as the Sao Paulo region observed a regional holiday for the day. One might therefore think that the markets will be set for another steady start to early trade today, against the prices set yesterday, as follows:
LONDON ROBUSTA US$/MT NEW YORK USC/LB.
SEP 4634 + 286 SEP 249.95 + 15.55
NOV 4464 + 288 DEC 247.20 + 15.05
JAN 4268 + 278 MAR 244.40 + 14.60
MAR 4103 + 256 MAY 241.25 + 13.90
MAY 3991 + 249 JUL 238.15 + 13.05
JUL 3908 + 242 SEP 235.05 + 12.00
SEP 3828 + 242 DEC 232.15 + 11.05
NOV 3774 + 242 MAR 229.50 + 10.20
