Coffee Market Report

April 17 2014

The Green Coffee Association in the U.S.A. has reported that the nations port warehouse stocks increased by a sizeable 132,307 bags or 2.74% during the month of March to register these stocks at the end of the month at 4,958,411 bags. These stocks that fuel green coffee demand in not only the U.S.A., but the entire North American market would at face value and with an approximate coffee demand of approximately 480,000 bags per month, equate to approximately 10.3 weeks of roasting activity.

However the stocks do not include the bulk container transit coffees, the onsite roaster inventory stocks and the coffee stocks held within non reporting warehouses in both the U.S.A. and Canada and these would have been at least another 1 million bags. Therefore in terms of North American coffee supply the end March stocks would have safely exceeded 12.5 weeks of roasting activity, which is a relatively safe volume of nearby coffee supply.

Albeit that the end March stocks included 667,518 bags of mostly aged arabica coffee certified stocks that were held within the U.S.A. based approved warehouses of the New York exchange, which would mostly not participate in North American roaster off take. Thus the reality was that the North American coffee stocks at the end of the month still were the equivalent of in excess of 11 weeks of roasting activity, which is a very safe number in terms of the flow of new crop South American and Asian coffees that are now coming to the market.

Brazil’s largest coffee cooperative Cooxupe have reported that the early harvested cherries are indicating losses from the forecasted crop that exceed 30%, but this is based on very small volumes and does not reflect any reality in terms of the main harvest. One might comment that it is particularly so as it was the cherries related to early flowering that were most vulnerable to the hot and dry weather in January and August, which were more filled out at the time of this problem and therefore, more likely to suffer damage.

In the meantime the latest rainfall reports have confirmed that some districts within the main arabica coffee state of Minas Gerais and after only two weeks, have already received 20% in excess of their five year average rainfall for this month, while most other districts in Minas Gerais are close to matching their five year monthly averages. These good reports are somewhat in the shade in terms of the coffee farms in South East Sao Paulo state, where rainfall levels are already 47% above the five year average for the month.

These figures are tending to dampen some speculative spirits, but the reality remains that the damage has been done and really the only positive factor about good April rains is that they shall assist to relieve stress on the trees and furthermore, make them less vulnerable to any light winter time frosts. But it does in terms of these factors, limit the potential follow through negative effects of the hot and dry weather and the potential low ground water retention levels, in terms of the follow on 2015 Brazil crop.

The Colombian coffee farmers and despite much improved financial returns for their coffees, are still determined to join the general farmer protests that are planned for the 28th. April. These protests demanding more state support for the countries agricultural sector, but with the short term nature of these protests having no impact upon speculative sentiment in terms of security of Colombian coffee supply.
The arbitrage between the markets narrowed yesterday to 94.41 usc/Lb. and therefore, equated to a still very attractive 49.99% price discount for the London robusta coffee market. This arbitrage continuing to inspire consumer market roaster interest in robusta coffees, to assist to take some of the bite out of the rise in arabica coffee prices.

The Certified washed Arabica coffee stocks held against the New York exchange were seen to decrease by 483 bags yesterday, to register these stocks at 2,577,544 bags. There was meanwhile a marginally larger in volume 899 bags decrease in the number of bags pending grading for the exchange; to register these pending grading stocks at 22,857 bags.

The commodity markets were steady in trade yesterday with the Oil, Natural Gas, Sugar, Cotton, Copper, Orange Juice, Corn, Wheat, Soybean, Gold, Silver and Palladium markets showing some buoyancy and the Cocoa and Platinum markets tending easier, while the Coffee markets had another very soft day’s trade. The Reuters Equal Weight Continuous Commodity Index that is that is made up from 17 markets is 0.09% higher; to see this Index registered at 563.39. The day starts with a relatively steady U.S. Dollar trading at 1.683 to Sterling and 1.384 to the Euro, while Brent Crude is showing some degree of buoyancy in early trade and is selling at $ 109.65 per barrel.

The London market started the day yesterday with immediate losses against speculative and producer price fixation hedge selling following the previous days collapse in the New York market, but with the New York market attracting good support and posting a positive stance. The London market continued on its negative track into the afternoon and despite the positive nature of the volatile New York market, which had posted gains of 7.45 usc/Lb. and was looking to show some muscle. These gains in New York were however short lived and the market faltered in early afternoon trade and with speculative profit taking and producer price fixation selling coming into play to trigger a sharp reversal that was accentuated by triggering sell stops, to accelerate the losses. The London market continued on its soft track and ended the day on a soft note and with 80.3% of the losses of the day intact, while the New York market likewise ended the day on a soft note and with 94.7% of the losses of the day intact. This soft close and with both markets closed tomorrow and the London market closed again on Monday while the New York market shall have a shortened solo day on Monday, is hardly likely to inspire players, but one might expect to see some restraint ahead of the holidays and a relatively steady start for early trade today against the prices set yesterday, as follows:

LONDON ROBUSTA US$/MT NEW YORK ARABICA USc/Lb.

MAY 2064 – 57 MAY 185.95 – 6.20
JUL 2082 – 46 JUL 188.85 – 6.20
SEP 2087 – 41 SEP 190.95 – 6.15
NOV 2090 – 38 DEC 193.50 – 6.15
JAN 2091 – 35 MAR 195.60 – 6.30
MAR 2091 – 34 MAY 196.50 – 6.25
MAY 2093 – 36 JUL 196.45 – 6.20
JUL 2097 – 39 SEP 195.75 – 5.95
SEP 2097 – 38 DEC 194.90 – 5.75
NOV 2097 – 38 MAR 194.25 – 5.55