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

Coffee Market Report

21 Dec 2016

The new crop harvest in Vietnam that had been delayed by a couple of weeks by the unseasonal bouts of rain, are estimated by the countries trade to be approximately 70% completed, with the harvest likely to be completed in the next couple of weeks. While with some improvement in the reference prices of the London market, there is more active internal market selling activity of new crop robusta coffees. Thus, for the short term at least, there is no tightness in supply of robusta coffees for the consumer market, as export volumes from Vietnam are expected to increase during the first quarter of the coming year.

There are however still concerns within the consumer markets that lacking any input of Brazil conilon robusta coffees and with tight supply of robusta coffees from Indonesia, that once the early sales of new crop Vietnam robusta coffees are concluded and farmers have sufficient funds in hand, that there shall be increased internal market price resistance within Vietnam. This is likely to once again start to inflate the asking export differentials for sales of Vietnam robusta coffees and by nature of such resistance slowing price fixation selling by exporters into the London market, to further buoy the prices of the market.

The March to March contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 47.55 usc/Lb., while this equates to a 33.05% price discount for the London robusta coffee market. This narrowing arbitrage is now becoming less of an attractive factor for the roasters who have considered robusta coffees to be an opportunist discount component, within their mostly arabica coffee blends.

The Certified washed Arabica coffee stocks held against the New York exchange were seen to increase by 396 bags yesterday; to register these stocks at 1,254,132 bags. There was meanwhile a larger in number 4,685 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 32,875 bags.

The Certified Robusta coffee stocks held against the London exchange were seen to decrease by 3,333 bags or 0.14% over the week of trade leading up to Monday 19th. December, to see these stocks registered at 2,363,333 bags, on the day.

The commodity markets had a mixed and quieter day yesterday, with the pending holiday season tending to slow activity, but with the robust nature of the U.S. dollar tending to impact negatively within many markets and to see the overall macro commodity index taking a softer track for the day. The Oil, Natural Gas, Sugar, Cotton and Orange Juice markets nevertheless are showing buoyancy and the Copper and Silver markets are steady, while the Cocoa, Coffee, Wheat, Corn, Soybean and Gold markets experienced a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.58% lower; to see this Index registered at 417.87. The day starts with the U.S. dollar steady and trading at 1.237 to Sterling and 1.041 to the Euro, while North Sea Oil is steady and is selling at $ 53.40 per barrel.

The markets started the day yesterday with the London market taking a near to steady stance and the New York showing a degree of buoyancy, but as the markets headed into the more active afternoon trade the London market extended its losses and the New York market started to falter and to join the London market within negative territory. Both markets encountered further pressure and extended their losses but there was something of a bounce back from the lows later in the day, to see the markets only suffer from relatively modest corrective losses. The London market ended the day on a modestly softer note and having recovered 73.9% of the earlier losses of the day, while the New York market likewise ended the day on a modestly softer note and having recovered 78.9% of the earlier losses of the day. The ability of the markets to bounce back so well from the lows of the day and with the charts still painting something of a mildly positive technical picture might be seen to be supportive for confidence and one might expect to see a hesitant steady start for early trade today, against the prices set yesterday, as follows:

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

JAN 2141 – 17
MAR 2123 – 6                                                MAR 143.85 – 0.40
MAY 2130 – 6                                                MAY 146.10 – 0.45
JUL 2134 – 8                                                    JUL 148.35 – 0.45
SEP 2139 – 3                                                    SEP 150.20 – 0.45
NOV 2143 – 1                                                  DEC 153.15 – 0.40
JAN 2145 – 3                                                  MAR 155.90 – 0.30
MAR 2150 – 6                                                MAY 157.55 – 0.25
MAY 2159 – 9                                                  JUL 159.15 – 0.20
JUL 2174 – 12                                                  SEP 160.80 – 0.20