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

Coffee Market Report

04 Aug 2016

The Association of Indonesian Coffee Exporters and Industries has reported the coffee production for 2016 shall be marginally lower than the previous year’s production, at a total of 10 million bags. This is a lower figure than their earlier forecasts and relative to many other forecasts, but there is no doubt that coffee deliveries to the export ports for the first half of this year were modest and do by nature, confirm the relatively tighter coffee supply.

There have however been improved volumes of coffee coming in to the mills and exporters over the last month and while there is no significant surge in Indonesian robusta coffee supply, the consumer markets have been able to look to the high volumes of Vietnam robusta coffee supply to cover for their requirements. One can however predict that with Indonesian robusta coffee supply to remain relatively tight through to the middle of next year and with only limited and uncompetitive in price Brazil conilon robusta coffee supply likewise until the middle of next year, that there shall be a drawdown in Vietnam robusta coffee stocks up to the start of the new Vietnam harvest at the end of the year.

Thus while with the larger new Brazil arabica coffee crop, forecasts for an improved new Central American and Mexican crop starting at the end of the year and along with a good new Colombian main crop over the last quarter of this year and the first quarter of next year there are no fears over medium to longer term arabica coffee supply, there are prospects for relatively tight robusta coffee supply. This is not to say that there shall be such a deficit so as to starve the consumer markets but with Vietnam left to be the main supplier and with the commercially educated nature of the farmers and internal traders in Vietnam, they can be expected to continue to show a degree of price resistance for the foreseeable future. Thus one can expect that speculative sentiment for the related London robusta coffee market shall remain somewhat buoyed, for the foreseeable future.

Meanwhile with overall global coffee supply foreseen to be in a small surplus for the coming October 2016 to September 2017 coffee year and with really nothing in the way of new climatic or crop scare reports coming to the markets, where many leading players are presently more focused upon the summer holiday season, trade is lacklustre for the present. Albeit that producers are taking heart from the significant improvement in value for both the New York and London markets since the soft prices encountered earlier in the year, with many players seemingly confident that there is some medium term reality to the new trading range.

The November to December contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 59.80 usc/Lb., while this equates to a 41.57% 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 1,305 bags yesterday; to register these stocks at 1,294,415 bags. There was meanwhile a larger in number 3,940 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 4,142 bags.

The commodity markets were mixed in trade yesterday and despite and despite some modest buoyancy for the U.S. dollar, the small recovery for the Oil markets assisted the overall macro commodity index to show a degree of buoyancy for the day. The Oil, Natural Gas, Cocoa, London robusta Coffee, Orange Juice, Wheat, Corn and Soybean markets had a day of buoyancy and the Sugar and Cotton markets had a steady day, while the New York arabica Coffee, Copper, Gold and Silver markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.68% higher; to see this Index registered at 419.24. The day starts with the U.S. dollar showing a degree of modest buoyancy and trading at 1.330 to Sterling and 1.114 to the Euro, while North Sea Oil is steady in early trade and trading at 41.40 per barrel.

The London and New York markets started the day yesterday on a steady note and with both markets taking a thinly traded erratic overall steady track into the early afternoon trade and with both markets tending to post a positive picture, but while the London market continued to maintain a positive stance the New York market came under pressure and slipped back into negative territory. It was however a generally lacklustre day of trade for the markets and while the New York market remained mostly to the negative side of par, the London market slipped a little but nevertheless remained mostly to the positive side of par. The London market ended the day on a very modest positive note and with only 11.1% of the earlier gains of the day intact, while the New York market ended the day on a negative note and with 55.6% of the earlier losses of the day intact. This close would does little to support the technical picture for the New York market but does assist to point to a degree of stability for the London market and thus one might expect to see a very hesitant and possibly 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 1827 + 1                                     SEP  140.40 – 0.85
NOV 1853 + 2                                   DEC 143.85 – 0.75
JAN 1871 + 3                                    MAR 146.95 – 0.65
MAR 1881 + 3                                  MAY 148.75 – 0.60
MAY 1894 + 3                                    JUL 150.25 – 0.45
JUL 1906 + 3                                       SEP 151.65 – 0.35
SEP 1918 + 3                                      DEC 153.55 – 0.20
NOV 1937 + 3                                   MAR 155.40 – 0.05
JAN 1946 + 3                                     MAY 156.45 + 0.05
MAR 1953 + 3                                     JUL 157.30 + 0.05