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


I. & M. Smith (Pty) Ltd.

Coffee Market Report

28 Dec 2016

The National Coffee Council in El Salvador have announced the countries coffee exports for the month of November were 922 bags or 25.86% higher than the same month last year, at a total of 4,487 bags. This has contributed to the countries cumulative exports for the first two months of the new October 2016 to September 2017 coffee year to have been 4,122 bags or 37.6% higher than the same period in the previous coffee year, at a total of 15,084 bags.

With the new crop in El Salvador still in its early stages of harvest these numbers do not really reflect the prospects for this new crop, which is being forecasted to be little changed from the approximately 600,000 bags harvested during the previous crop. Thus, forecasts for the countries coffee exports for this new coffee year are looking to a similar number as was exported during the previous coffee year, which totalled 485,046 bags.

The General Statistics Office in Vietnam and with the month of December coming to the close, are forecasting that the countries coffee exports of mostly robusta coffees for the month shall be approximately 5.4% higher than the same month last year, at a total of 2.67 million bags. This volume they say, would contribute to the countries coffee exports of mostly robusta coffee for this calendar year to total 29.83 million bags, which is a volume when one considers the close to 3 million bags domestic consumption, that would have resulted in the liquidation of at least 4 million bags of the carryover stocks from the previous 2015 harvest.

In the meantime, the new crop harvest that had experienced interruptions and delays from the spells of unseasonal rains over the past two months is starting to come to taper off, but with this new crop forecasted to be a smaller crop of between 26 million and 27 million bags and with the domestic consumption in mind, it is likely that there shall be a relatively sharp dip in Vietnam coffee export volumes during 2017.

This likely to tighten up robusta coffee supply to the consumer markets by the second quarter of next year and lacking competition for robusta coffee supply from Brazil and to a lesser extent Indonesia, good reason to believe in the medium to longer term relative buoyancy of the London robusta coffee market. The question is that while one might expect to see the London market show some muscle relative to the New York arabica coffee market, what shall be prospects for this latter surplus supply New York arabica coffee market in the coming months.

Presently with the New York market now hitting six month lows it was perhaps a bit of surprise that the iconic German roast Tchibo had announced yesterday that they intend to raise their coffee prices from the 16th. January 2017, but they do make the point that it is very much related to the weaker Euro and its relationship to the dollar prices of coffee, as it is to the international coffee prices themselves. While many would see this move by Tchibo, to be something of trigger for other German and European roasters in general to feel more confident to follow suit. Usually the news of the increase in the retail prices of coffee within the major consumer markets and its inference that roasters are able to pay up for their coffee stock, is seen to be positive for market sentiment. However, with the reference to the exchange rate factor rather than the prevailing dollar prices for coffee, would tend to negate the positive influences of this news upon market sentiment.

The March to March contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 39.44 usc/Lb., while this equates to a 29.39% 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 1,050 bags yesterday; to register these stocks at 1,263,682 bags. There was meanwhile a larger in number 2,547 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 25,938 bags.

The commodity markets were mostly back at work yesterday with only the London markets off the field of play for the extended Christmas long weekend in the United Kingdom, with the markets mixed in trade and with the overall macro commodity index taking a positive track for the day. The Oil, Sugar, Cotton, Copper, Wheat, Gold and Silver markets had a day of buoyancy, while the Natural Gas, Cocoa, New York arabica Coffee, Orange Juice, Corn and Soybean markets tended softer for the day. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 1.12% higher; to see this Index registered at 419.42. The day starts with the U.S. dollar tending slightly softer and trading at 1.229 to Sterling and 1.047 to the Euro, while North Sea Oil is showing a degree of buoyancy and is selling at $ 54.95 per barrel.

The London market was closed yesterday to leave the New York market to trade solo for a shortened trading day, with the New York market opening on a hesitant manner and soon coming under follow through selling pressure, but with some industry support seemingly coming into play at the lows of the day and to halt the slide. The New York market ended the day on soft note and with 67.2% of the earlier losses of the day intact. This soft close in New York and following the relatively sharp losses on Friday last week is not good for confidence and contributes to a negative technical picture for the market, but with the dollar a little unsteady this morning and the New York market starting to look a bit oversold, one might expect to see perhaps some catch up selling pressure for the London market and a steady start for the New York market against the prices set in London on Friday and New York yesterday, as follows:


JAN 2103 + 27
MAR 2089 + 25                                              MAR 134.20 – 1.95
MAY 2095 + 24                                              MAY 136.50 – 1.90
JUL 2099 + 22                                                  JUL 138.80 – 1.90
SEP 2104 + 23                                                  SEP 140.85 – 1.80
NOV 2106 + 23                                               DEC 143.85 – 1.80
JAN 2106 + 23                                                MAR 146.65 – 1.70
MAR 2109 + 23                                              MAY 148.40 – 1.65
MAY 2116 + 22                                                JUL 150.00 – 1.65
JUL 2128 + 21                                                  SEP 151.70 – 1.70