I. & M. Smith (Pty) Ltd. since 1915
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I. & M. Smith (Pty) Ltd.

Coffee Market Report

02 Aug 2016

The latest Commitment of Traders report from the New York arabica coffee market has seen the shorter term in nature Managed Money fund sector of this market decrease their net long position within the market by 3.35% over the week of trade leading up to Tuesday 26th. July; to register a net long position of 34,412 Lots. Meanwhile the longer term in nature Index Fund sector of this market decreased their net long position within the market by 1.21%, to register a net long position of 32,611 Lots on the day.

Over the same week the Non Commercial Speculative sector of this market decreased their long position within the market by 3.7%, to register net long position of 35,137 Lots. This net long position which is the equivalent of 9,961,184 bags is most likely to have been modestly buoyed, following the period of mixed but overall more positive trade that has since followed and likewise, that of the Managed Money Fund sector within this market.

The latest Commitment of Traders report from the London robusta coffee market has seen the Speculative Non Commercial sector of this market increase their net long position within this market by 2.94% during the week of trade leading up to Tuesday 26th. July; to register a long position of 21,929 Lots. This net long position which is the equivalent of 3,654,833 bags has most likely been little changed to perhaps marginally increased, following the period of mixed but overall buoyant trade that has since followed.

The National Coffee Institute in Honduras have reported that the countries coffee exports for the month of July were 68,323 bags or 22.01% higher than the same month last year, at a total of 378,000 bags. This improved performance has contributed to the countries cumulative exports for the first ten months of the present October 2015 to September 2016 coffee year to be 1.26% lower than the same period in the previous coffee year, at a total of 4,894,876 bags.

The Honduras coffee exports for the first ten months of the present coffee year are running well behind the forecasts that came with the large new crop and with the Coffee Institute now talking in terms of exports for the present coffee year to be below 5.3 million bags, but as no reflection on the quality of the October 2015 to March 2016 new crop harvest. Rather that the exports have suffered from what would appear to be increasing volumes of coffee exports into neighbouring countries and for the coffees to proceed on to the consumer markets under another flag, with Guatemala being the main target market, but accompanied by relatively large volumes of Honduras coffees also moving into Mexico and Nicaragua.

There is of course no official number for these cross border transit coffees from Honduras as they are by nature unofficial and unquantifiable exports, but with estimates talking of in excess of 600,000 bags moving into Guatemala and perhaps in excess of 150,000 bags each moving into Mexico and Nicaragua, it would appear that unofficial regional exports from Honduras are moving close to 1 million bags per annum. These coffees assisting Honduras farmers to avoid tax, but also chasing the relatively higher price differentials that the brand name Guatemala and Mexican coffees can offer.

The preliminary coffee export numbers for the month of July have been announced by the Trade Ministry in Brazil, with coffee exports for the month seen to be a significant 761,689 bags or 30.48% lower than the same month last year, at a total of 1,737,406 bags. It must be noted however that with the arabica coffee stocks ahead of the new Brazil crop much depleted and with smaller new conilon robusta coffee crop this year, that this would have been expected to impact significantly upon Brazil coffee exports for the month of July.

The expectations would be however, that with the new Brazil arabica coffee crop now peaking and getting closer to completion that Brazil coffee export volumes can be expected to start increasing again for the last four months of the year. Albeit that in the meantime the slowdown in coffee exports from Brazil in July, can be expected to assist to under pin speculative confidence in the New York arabica coffee market.

The November to December contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 63.15 usc/Lb., while this equates to a 43.03% 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 were seen to increase by 2,928 bags yesterday; to register these stocks at 1,292,468 bags. There was meanwhile a larger in number 4,650 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 9,165 bags.

The commodity markets were again mixed in trade yesterday but with the softer nature of the important Oil markets assisting to take the overall macro commodity index on a softer track for the day. The Cocoa, Cotton, Orange Juice, Wheat, Gold and Silver markets had a day of buoyancy, while the Oil, Natural Gas, Sugar, Coffee, Copper, Corn and Soybean markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.45% lower; to see this Index registered at 418.59. The day starts with the U.S. dollar near to steady and trading at 1.318 to Sterling and 1.118 to the Euro, while North Sea Oil is steady in early trade and trading at 40.20 per barrel.

The London and New York markets started the day yesterday with modest corrective buoyancy and took an erratic negative track into the afternoon trade, which set the direction for both markets for the day and with the markets taking a relative slow and erratic track south for the rest of the day’s trade. The London market continued to end the day on a soft note and with 96.6% of the earlier losses of the day intact, while the New York market likewise ended the day on a soft note and with 91.7% of the earlier losses of the day intact. This soft close does little to inspire but having not been an aggressive sell off and rather a slow and steady liquidation, both markets might nevertheless be due for a cautious near to steady start for early trade today against the prices set yesterday, as follows:

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

SEP 1818 – 30                                     SEP 143.45 – 2.75
NOV 1843 – 28                                  DEC 146.75 – 2.75
JAN 1860 – 28                                   MAR 149.70 – 2.70
MAR 1870 – 29                                 MAY 151.40 – 2.70
MAY 1883 – 29                                   JUL 152.80 – 2.70
JUL 1895 – 29                                     SEP 154.05 – 2.75
SEP 1907 – 29                                    DEC 155.80 – 2.75
NOV 1926 – 29                                 MAR 157.45 – 2.75
JAN 1935 – 29                                   MAY 158.40 – 2.75
MAR 1902 – 29                                    JUL 159.25 – 2.75