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

Coffee Market Report

03 Aug 2016

The largest coffee cooperative in Brazil Cooxupe and with the cooperatives focus upon arabica coffees, has reported that their new crop is well on the way and is now 68% harvested, in comparison to the more modest 53% recorded at the same time last year. Thus one might comment that with the countries conilon robusta coffee harvest just about completed, that the overall Brazil new crop harvest is peaking and is due to be over by the end of the month and well ahead of the late September start for the new spring and summer rain season.

While with the new arabica coffee harvest now fuelling good volumes of new crop harvest to the countries short sold exporters, one might expect to see Brazil arabica coffee export volumes start to pick up in volume this month and furthermore, during the month of September. Albeit that with farmers well aware of the demand from the exporters and with inflation having impacted upon their costs of production and the harvest, while the exchange rate that has firmed from the early in the year levels of in excess of 4 to the dollar to today’s rate of 3.25 to the dollar, one can expect a degree of internal market price resistance for sales of new crop arabica coffees.

It would appear for the present that the weather conditions over Central America and southern Mexico are for the present favourable for the coffee farms and with the new crop developing towards the start of the new crop harvest that will impact for the lower grown districts as early as late October, that the prospects for this new crop are looking good. Some are already forecasting that this new crop of mostly fine washed arabica coffees might be overall as much as 7% larger than the last 2015/2016 harvest, at well in excess of 18 million bags.

The Ivory Coast have reported that the countries coffee exports that are related to robusta coffees are 40% higher for the first six months of this year, with these exports recorded at 640,017 bags as at the end of June. These exports are however still well below the forecasted 1.6 million bags of exports for this year and thus, one might expect that export volumes shall start to pick up in volume for the second half of the year. With these robusta coffees having a traditional market within the north African Mediterranean rim countries and likewise, some of the European Mediterranean rim countries.

The November to December contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 60.64 usc/Lb., while this equates to a 41.94% 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 642 bags yesterday; to register these stocks at 1,293,110 bags. There was meanwhile a larger in number 1,083 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 8,082 bags.

The Certified Robusta coffee stocks held against the London exchange were seen to decrease by 15,000 bags or 0.61% over the week of trade leading up to Monday 1st. August, to register these stocks at 2,431,833 bags, on the day. These stocks that include a significant volume of unique cup profile Brazil conilon robusta coffees that have a traditional support base within the North American market have yet to react to the prevailing inflated prices for conilon coffees from origin in reaction to this year’s smaller harvest have yet to attract buying support from North America, but might perhaps see some increased interest post the present summer holiday season.

The commodity markets were mixed in trade yesterday and despite some support from the news of improved consumer data from the U.S.A. and the marginally weaker nature of the U.S. dollar, the overall macro commodity index took a softer track for the day. The Sugar, London robusta Coffee, Copper, Wheat, Soybean, Gold and Silver markets had a day of buoyancy and the Natural Gas market was steady, while the Oil, Cocoa, New York arabica Coffee, Cotton, Orange Juice and Corn markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.52% lower; to see this Index registered at 416.39. The day starts with the U.S. dollar near to steady and trading at 1.333 to Sterling and 1.121 to the Euro, while North Sea Oil is steady in early trade and trading at 39.85 per barrel.

The London and New York markets started the day yesterday on a steady note and with both markets attracting support to add value into the early afternoon trade and setting a positive stance for the markets, but while the London market retained its positive stance the New York market and perhaps with some influence from the negative nature of the macro commodity index started to come under pressure to falter and start heading south, with sell stops coming into play to accelerate the losses and take the New York market back into negative territory. The London market did however shrug off the negative influences of the softer New York market and while losing a little weight, maintained a positive stance for the rest of the day, while the New York market failed to recover from the pressure above the market. The London market ended the day on a modestly positive note and with 42.1% of the earlier gains of the day intact, while the New York market ended the day on a soft note and with 75.4% of the earlier losses of the day intact. This mixed close and with many major players on their summer holidays does little to inspire and despite some degree of dollar weakness one might expect to see little better than a 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 1826 + 8                                       SEP 141.25 – 2.20
NOV 1851 + 8                                    DEC 144.60 – 2.15
JAN 1868 + 8                                     MAR 147.60 – 2.10
MAR 1878 + 8                                   MAY 149.35 – 2.05
MAY 1891 + 8                                     JUL 150.70 – 2.10
JUL 1903 + 8                                       SEP 152.00 – 2.05
SEP 1915 + 8                                      DEC 153.75 – 2.05
NOV 1934 + 8                                   MAR 155.45 – 2.00
JAN 1943 + 8                                     MAY 156.40 – 2.00
MAR 1950 + 48                                   JUL 157.25 – 2.00