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

Coffee Market Report

08 Aug 2016

The latest Commitment of Traders report from the New York arabica coffee market has seen the Non Commercial Speculative sector of this market decrease their net long position within the market by 6.37% during the week of trade leading up to Tuesday 2nd. August; to register a net long position of 32,898 Lots on the day. This net long position which is the equivalent of 9,3,26,437 bags has most likely been marginally increased, following the period of mixed but overall more positive trade which has since followed.

The Association of Coffee Exporters and Industries in Indonesia are reported to have signed a 100 million U.S. dollar loan agreement with the International Islamic Trade Finance Corporation, to use the funding to assist to improve the coffee farming extension services, with the intent to finance and train the countries farmers to improve their farm husbandry and coffee yields. This program they hope shall assist the countries coffee farmers with average yields of a relatively modest 715 Kilograms per hectare, to improve yields by at least 65% and look to significantly improve Indonesia’s market share within the consumer markets.

This is an ambitious scheme and with some even talking about following the example of Vietnam and even doubling yields upon many farms, but one might remain sceptical over the possibility for Indonesia to increase production by in excess of 7 million bags in the coming three to four years. But there is no doubt that the finance and its related farm inputs and farm training programs, shall have some impact to buoy production levels within Indonesia.

Meanwhile with the Brazil frost season threat generally seen to be past for this year, the focus is starting to look towards the threat of a developing La Nina phenomenon within the Pacific Ocean in the coming months and with fears being voiced within Colombia and Indonesia of the excessive and damaging rains that the phenomenon might bring. It is however still foreseen to be a possibility rather than a definite threat and for the present the issue of a La Nina while providing for some degree of speculative support for the markets, is not yet a strong factor within the markets. It might however prove to be a pivotal factor for the markets by the end of the year as if there is no intense La Nina coming to the fore, the focus might return to the negative factor of surplus global coffee production due for the coming year.

Uncertain global weather issues aside there really is no striking coffee news coming to the markets and with many players presently distracted by the summer holidays in the northern hemisphere countries, physical coffee trade is lacklustre for the present. Particularly so as the consumer market coffee stocks are more than sufficient to cater for short to medium term industry demand, to eliminate any excitement on the part of the main stream roasting industries.

The Certified washed Arabica coffee stocks held against the New York exchange were seen to decrease by 745 bags on Friday; to register these stocks at 1,291,286 bags. There was meanwhile a larger in number 9,625 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 14,592 bags.

The commodity markets were mixed in trade on Friday and with good U.S.A. employment data coming to the fore during the day, but with punters still tending to bet on stable rather than raised U.S. interest rates due to come from the September meeting of the Federal Reserve Bank. Thus with a focus on business as usual the overall macro commodity index remained with modest buoyancy for the day, to end the week on a relatively steady note. The Sugar, Cocoa, Coffee, Cotton, Orange Juice, Wheat, Corn and Soybean markets had a day of buoyancy, while the Oil, Natural Gas, Copper, Gold and Silver markets had a day of buoyancy. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.39% higher; to see this Index registered at 422.45. The day starts with the U.S. dollar steady and trading at 1.308 to Sterling and 1.110 to the Euro, while North Sea Oil is showing a degree of buoyancy in early trade and trading at 42.60 per barrel.

The London and New York markets started the day on Friday with modest buoyancy and with both markets taking a positive track into the early afternoon trade and with support coming to the fore for the London market from the view that Vietnam export volumes are likely to be more modest over the next couple of months, while the firmer nature of the Brazil Real that is trading today at 3.16 to the dollar assisted to buoy sentiment for the New York market. Both market nevertheless came under some pressure as the afternoon progressed and with the New York market losing its way and falling back into negative territory, while the London market followed suit to drop back to par. Both markets did however pick up late in the day support and to move back into positive territory, to end the week on a hesitantly positive note. The London market ended the day on a modestly positive note but with only 33.3% of the earlier gains of the day intact, while the New York market likewise ended the day on a modestly positive note and with only 26.5% of the earlier gains of the day intact. This close and with only modest buoyancy for the end of the day is perhaps not a convincing factor and one might expect to see little better than a hesitant near to steady start for early trade today against the prices set on Friday, as follows:

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

SEP 1823 + 6                               SEP 142.50 + 0.40
NOV 1853 + 7                             DEC 146.15 + 0.45
JAN 1871 + 6                              MAR 149.30 + 0.50
MAR 1882 + 6                            MAY 151.05 + 0.45
MAY 1894 + 7                              JUL 152.70 + 0.45
JUL 1904 + 7                                SEP 154.30 + 0.40
SEP 1916 + 7                               DEC 156.50 + 0.35
NOV 1929 + 1                            MAR 158.60 + 0.45
JAN 1938 + 1                              MAY 159.75 + 0.45
MAR 1945 + 1                               JUL 160.75 + 0.35