Coffee Market Report

The largest coffee cooperative in Brazil Cooxupe have reported that their farmers had completed 94% of their new arabica coffee harvest by Friday last week, to further confirm that with the conilon robusta crop having been completed quite some weeks ago, that the overall new Brazil crop is now very close to completion. While with good volumes of new crop arabica coffees having been in store for over six weeks already, there are now good volumes of well-conditioned and settled in cup quality arabica coffees available to the countries short sold exporters.

Farmers are however well aware of the short sold position of most exporters and there remains a degree of internal market price resistance for new crop coffees, which is pressuring the internal market prices higher. A direction that is easy for farmers to take, as with little in the way of carryover stocks to liquidate and no certainty as of yet as to the prospects for the next 2017 crop, they have time to sell their new crop coffees.

The traditionally conservative National Statistics Institute IBGE in Brazil have come to the fore yesterday, with a 2.7% lower new Brazil coffee crop forecast and with their latest assessment for a relatively modest 47.8 million bags. This forecast indicating a new Brazil conilon robusta coffee crop of only 8 million bags and a new Brazil arabica coffee crop of 39.8 million bags. These figures are however so dramatically out of line with the majority of other and well qualified forecasts as they are with the selling activity of the country’s coffee farmers that do not reflect such low figures and it is evident, that the report does not have much influence upon market sentiment.

Albeit that there remain relatively good internal market robusta coffee stocks and in the meantime the buoyancy of the reference prices of the London robusta coffee market is assisting to buoy internal market prices for the Brazilian farmers and internal traders, there is little in the way of selling aggression within Vietnam. This seemingly brings some degree of credibility to the many forecasts for a lower new crop from the forthcoming October to December harvest and the need to hold on to stocks for the potentially improved prices to come, while speculation that due to the erratic rain season the new crop harvest might be a few weeks late to start, also contributing to the slow internal market selling activity. And this is despite indications that internal market prices for robusta coffees, are now at an over eighteen months high.

There are however no real concerns being voiced within the consumer markets over the short to medium term overall coffee supply, as there is no threat with the larger new Brazil arabica coffee crop, steady Colombian fine washed arabica coffee supply and good robusta stock levels within Vietnam, to coffee availability for the next six months. However, with the lack of an intense La Nina that would usually bring with it increased rains for south east Brazil there are some concerns over the prospects for the next 2017 Brazil coffee crop, which along with the probability of a smaller new Vietnam crop, is contributing towards positive sentiment for the speculative sectors of the international coffee markets.

One might also suspect that with most of the main consumer market industries having so far this year not believed in any tightness in longer term coffee supply and with many having been off site during the summer holidays, that there are good volumes of catch up industry buying due for the markets. This factor and with the speculative and fund sectors of the markets presently showing confidence in the markets, could be seen to be a supportive factor for the terminal markets for the present.

The November to December contracts arbitrage between the London and New York markets broadened yesterday, to register this at 68.07 usc/Lb., while this equates to a 44.27% price discount for the London robusta coffee market. This arbitrage remaining relatively attractive to roasters in comparison to arabica coffee prices, continues to inspire support for the robusta coffee sector of the industry.

The Certified washed Arabica coffee stocks held against the New York exchange with the exchange were seen to decrease by 2,425 bags yesterday; to register these stocks at 1,273,939 bags. There was meanwhile, a larger in volume 3,686 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 11,696 bags.

The Certified Robusta coffee stocks were seen to decrease by 10,667 bags or 0.45% over the week of trade leading up to Monday 5th. September, to register these stocks at 2,355,667 bags, on the day.

The commodity markets with somewhat disappointing economic news out of Brazil and the resulting speculation that there might not be reason to believe in an interest rate hike due for the Dollar in September, saw many markets buoyed by the reduced muscle of the dollar yesterday, which assisted to buoy the overall macro commodity index for the day. The Sugar, Cocoa, Coffee, Cotton, Copper, Orange Juice, Soybean, Gold and Silver markets had a day of buoyancy, while the Oil, Natural Gas, Wheat and Corn markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.81% higher; to see this Index registered at 418.07. The day starts with the softer U.S. dollar steady in early trade and trading at 1.342 to Sterling and 1.126 to the Euro, while North Sea Oil is showing a degree of buoyancy in early trade and trading at 46.95 per barrel.

The London and New York markets opened the day post the long weekend for the New York market on a positive note and with the London market moving up to an eighteen month high and with both markets taking a positive track into the afternoon trade, but with the London market tending to come off the boil and heading back through par and into negative territory in early afternoon trade, while the New York market shed some of its earlier gains. As the afternoon progressed though, the New York market recovered most of its lost gains of earlier in the day and the London market moved back to the positive side of par. This assisted to buoy confidence and with producer selling muted for both markets, for the both markets to take a positive stance for the rest of the day’s trade. The London market ended the day on a positive note and with 60% of the earlier gains of the day intact, while the New York market ended the day on a very positive note and with 94% of the earlier gains of the day intact. This close assists towards a positive technical picture for the markets and with today’s Dia da Independência or Independence Day holiday in Brazil due to dampen producer selling activity within the volatile New York market, one might expect to see a degree of follow through buoyancy for the markets for early trade today against the prices set yesterday, as follows:

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

SEP 1867 + 12                                    SEP   152.45 + 2.35
NOV 1889 + 12                                  DEC  153.75 + 2.35
JAN 1911 + 13                                   MAR 156.85 + 2.35
MAR 1925 + 12                                 MAY 158.60 + 2.35
MAY 1936 + 10                                   JUL 160.15 + 2.40
JUL 1946 + 9                                        SEP 161.50 + 2.45
SEP 1955 + 6                                       DEC 163.30 + 2.25
NOV 1967 + 5                                    MAR 165.05 + 2.10
JAN 1976 + 5                                     MAY 166.15 + 2.10
MAR 1983 + 5                                      JUL 167.15 + 2.05