Coffee Market Report

April 24 2014

There was a very positive and confident report from the Vietnam Coffee and Cocoa Association yesterday, who forecast that the country shall export 25 million bags of mostly robusta coffee during this year, at a value of approximately 3 billion U.S. dollars. While the association talked in terms of the issues of the drought earlier in the year in Brazil of longer term tightness in world coffee supply, which would buoy prices and the fortunes of their coffee industry.

Meanwhile drought is no longer an issue for Brazil, with overall good April rains for most of the coffee districts and with the possibility of a mild El Nino coming into play for the second half of the year in the Pacific ocean and its resulting influence for increased rains for south and central Brazil, it would indicate a good spring and summer rain season for the main coffee districts. This one would expect shall assist to trigger a good flowering towards the follow on 2015 crop, which one would think shall be a relatively good crop. One that shall be further supported by the now more affordable in terms of coffee prices and farm profits, by good levels of farm inputs.

The spring and early summer rain season is starting in Central America and the flowerings towards the next October 2014 to March 2015 crop, which shall likewise be supported by profitable sales from the recently completed harvest and good levels of farm inputs. Thus so far the forthcoming new crop is looking to much improved over the 2013/2014 crop that suffered from both the devastating effects of Roya or Leaf Rust and the lower levels of farm inputs, which came with the dismal prices and lack of profits during last year.

It is still early days in terms of Mexican and Central American coffee production to forecast the next crop, but potentially following the recently completed combined crop of approximately 16 million bags, one would think that it could once again be close to 17.5 million bags. This added to the potential for the coming year of a Colombian crop of close to 12 million bags, should see regional fine washed arabica coffee production rise towards the 29.5 million bags level and thus, exceed the levels of coffee from the region of the past two years.

Making note that with the recent rally in prices that has been influenced by the weather problems encountered in Brazil and the inability of many main stream roasters to absorb the resulting higher fine washed arabica prices in their blends, that there has been a softening in demand for these coffees. This would therefore suggest that on the longer term, there shall be something of an oversupply of mild coffees coming into play, which shall by the coming year have an effect upon the premiums that these coffees presently attract, relative the natural arabica coffee prices.

The struggling Cameroun coffee industry has reported that robusta coffee exports for the month of March were 12,667 bags or 43.8% lower than the same month last year, at a total of 16,250 bags. This contributed to the cumulative robusta coffee exports for the first four months of their December 2013 to November 2014 robusta coffee year being 16,800 bags or 36.35% lower than the same period in the previous coffee year, at a total of 29,417 bags.

Meanwhile the Cameroun’s arabica coffee exports for the month of March were registered at 1,400 bags, which with the arabica coffee year related to the more conventional October 2013 to September 2014 coffee year, sees the countries arabica coffee exports for the first six months of the present coffee year being 10,367 bags or 77.46% lower than the same period in the previous coffee year, at a total of 3,017 bags.

The Certified washed Arabica coffee stocks held against the New York exchange were seen to decrease by 1,600 bags yesterday, to register these stocks at 2,577,285 bags. There was meanwhile a similar in volume 1,905 bags increase in the number of bags pending grading for the exchange; to register these pending grading stocks at 15,203 bags.

The commodity markets are seemingly shrugging off the negative influences of slowing manufacturing activity in China, as they gain confidence from the steady growth in North America and were overall steady in trade yesterday. The Natural Gas, Sugar, Cocoa, Coffee, Cotton, Copper, Orange Juice, Wheat, Corn, Gold and Silver markets showed buoyancy, while the Oil, Soybeans, Platinum and Palladium markets tended softer for the day. The Reuters Equal Weight Continuous Commodity Index that is that is made up from 17 markets is 0.48% higher; to see this Index registered at 568.19. The day starts with the U.S. Dollar steady at 1.678 to Sterling and 1.381 to the Euro, while Brent Crude is showing buoyancy in early trade and is selling at $ 109.00 per barrel.

The London market started the day yesterday on a steady note, while the New York market attracted some negative pressure in early trade, but soon recovered and both markets showed good buoyancy into the afternoon’s trade. This remained the track for the day but with markets losing some of their muscle as the day progressed and with the London market ending the day on a positive note and with only 34.1% of the gains of the day intact, while the New York market ended the day on a likewise positive note, but again with only 9.8% of the gains of the day intact. While the arbitrage between the markets yesterday remained steady at 115.52 usc/Lb. and therefore, equates to a very attractive 53.99% price discount for the London robusta coffee market. This positive but overall rather flat close might not be inspirational for sentiment and one might thus expect to see a steady to softer start for early trade today, against the prices set yesterday, as follows:

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

MAY 2152 + 6 MAY 212.35 + 0.55

JUL 2170 + 14 JUL 213.95 + 0.55

SEP 2176 + 16 SEP 215.95 + 0.55

NOV 2179 + 16 DEC 218.15 + 0.65

JAN 2184 + 16 MAR 220.30 + 0.90

MAR 2190 + 16 MAY 220.85 + 0.80

MAY 2198 + 17 JUL 220.45 + 0.70

JUL 2205 + 19 SEP 219.55 + 0.65

SEP 2208 + 22 DEC 218.50 + 0.70

NOV 2208 + 26 MAR 217.35 + 0.60