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


I. & M. Smith (Pty) Ltd.

Coffee Market Report

09 Mar 2017

The customs authorities in Vietnam have reported that the countries coffee exports of mostly robusta coffees for the month of February were registered at in excess of 2.43 million bags, which exceeded all forecasts for this short month and one that was interrupted by the week-long Tet New Year holiday. This report is perhaps something of a surprise to many within the Vietnam coffee industry as prior to this report, the state authorities had been forecasting February coffee exports at 2.17 million bags and the trade had been forecasting export volumes for the month, which ranged between 1.83 million and 2.33 million bags.

The prevailing good volumes of coffee exports from Vietnam that aside from exports has to cater for a domestic market demand that is steadily increasing and is estimated by some to be approximately 2.8 million bags per annum as against what has been seen to be a smaller new crop, is likely to see Vietnam robusta coffee export volumes start to tail off by May this year. By this time thought there shall be the support of new crop robusta coffees coming to the fore from Indonesia, but if the forecasts prove to be correct, no real contribution from what is foreseen to be another dismal new Brazil conilon robusta coffee crop. This scenario assisting to buoy confidence in the medium-term prospects for the related London robusta coffee market and evident, from the narrowing of the arbitrage between the London and New York markets.

The Colombian Coffee Federation who have been promoting the replanting of aged coffee trees by their farmers over the past decade and with the evidence of the success of this program clearly illustrated by the steady increase in the countries coffee production over the past couple of years, has announced that the program shall have to continue if Colombia is to ensure that annual crops shall remain in excess of 14 million bags. Indicating that the program should target the replacement of close to 10% of the country’s coffee trees with new disease resistant and higher yielding varieties per annum and therefore, to replant close to 90,000 hectares per annum.

The recommendation by the Colombian Coffee Federation is related to the country presently having approximately 930,000 hectares of land under coffee, which would equate to average farm yields still only 970 Kgs. per hectare. One might suggest that with the potential that the average yield with additional planting of new trees and accompanied by good levels of farm inputs and good farm husbandry, can still be significantly increased over the coming years. Thus, to perhaps see Colombia heading closer to the 20 million bags production levels per annum, which is a number that has previously been indicated as a probable longer term target.

It is of course not only Colombia that has experienced the success of sponsored replanting programs that have encouraged and partially assisted farmers in terms of extension services support for farmers to replant old trees, as such programs have been in place within many countries but perhaps most notable would be the recent successes in terms of the increased yields in Vietnam and Honduras. With these successes encouraging many other countries to follow suit and one would think that good examples would be the active farm support programs that are taking place in the East African countries and in Indonesia, which shall in time assist to buoy production and potentially assist to ensure that supply shall continue to match the steadily growing global consumption.

The May to May contracts arbitrage between the London and New York markets broadened yesterday, to register this at 42.46 usc/Lb., while this equates to 29.95% price discount for the London robusta coffee market. This once again narrowing arbitrage is now becoming less of an attractive factor for the many price sensitive roast and ground 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 decrease by 3,599 bags yesterday; to register these stocks at 1,338,966 bags. There were meanwhile a larger in number 5,048 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 27,724 bags.

The commodity markets continued to encounter a firming U.S. dollar yesterday that is supported by the anticipation of a nearby interest rate hike, to see the overall macro commodity index take a negative track for the day yesterday. The Natural Gas, Coffee and Cotton markets nevertheless had a day of buoyancy and the Sugar market was steady, while the Oil, Cocoa, Copper, Orange Juice, Wheat, Corn, Soybean, 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 0.82% lower, to see this Index registered at 420.24. The day starts with the U.S. Dollar showing follow through buoyancy and trading at 1.216 to Sterling and at 1.053 to the Euro, while North Sea Oil is steady and is selling at $ 51.70 per barrel.

The London and New York markets started the day on a steady note, but with both markets coming under some early pressure in thin trade and taking a modestly softer track into the early afternoon trade. The markets did however soon recover and with both markets soon moving back into modest positive territory and following another short reversal to once again recover and to take a positive track through to the end of the day’s trade. The London market continued to end the day on a very positive note and with 95.2% of the gains of the day intact, while the New York market ended the day on a less certain positive note and with only 58.4% of the earlier gains of the day intact. This positive close to the day is constructive for confidence within the markets but with the buoyancy related to what is relative thin trade it might not encourage little better than another hesitantly steady start for early trade today against the prices set yesterday, as follows:


MAR 2163 + 20                                             MAR 140.05 + 1.05
MAY 2189 + 20                                             MAY 141.75 + 1.05
JUL 2205 + 17                                                 JUL 144.05 + 1.05
SEP 2215 + 17                                                 SEP 146.30 + 1.00
NOV 2216 + 15                                              DEC 149.55 + 1.00
JAN 2215 + 15                                               MAR 152.80 + 1.05
MAR 2217 + 15                                             MAY 154.75 + 1.05
MAY 2219 + 15                                               JUL 156.40 + 0.95
JUL 2220 + 14                                                 SEP 157.95 + 0.95
SEP 2228 + 14                                                DEC 160.15 + 0.95