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

Coffee Market Report

29 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 increase their net long position within the market by 13.93% during the week of trade leading up to Tuesday 23rd. August; to register a net long position of 27,832 Lots on the day. This net long position which is the equivalent of 7,890,249 bags has most likely been marginally decreased, following the period of mixed but overall softer trade which has since followed.

With most of the August coffee export registrations already in hand, the General Statistics Office of the Vietnam Government have estimated that the countries coffee exports for the month shall be approximately 2.33 million bags, which is in excess of the earlier trade and exporter forecasts for exports of between 1.67 million and 2 million bags. This good export performance they report, will result in the countries coffee exports of mostly robusta coffees for the first eleven months of the present October 2015 to September 2016 coffee year to be 33.3% higher than the same period in the previous coffee year, at a total of 26.67 million bags.

This figure would with one month still to go, suggest that Vietnam shall export in excess of 28.5 million bags during the present coffee year which with a domestic consumption of in excess of 1.7 million bags, would have assisted to liquidate approximately 2 million bags of the record carry over robusta coffee stocks that were taken into the last Vietnam harvest. However, these stocks were substantial and one would expect that Vietnam shall have between 3 million and 4 million bags of carryover robusta coffee stocks to take into the new harvest that shall start in October, which is a new crop that is largely in terms of the recent Reuters Poll being forecasted to be a smaller crop of around 26.5 million bags.

Thus with tightening robusta coffee supply out of Brazil, Indonesia, Uganda and potentially too from the new Indian crop, it will be necessary for Vietnam to have these carryover stocks in hand and to continue with relatively high volume robusta coffee exports for the rest of this year and likewise, the first half of next year. But this would be an export performance if the forecasts for the new crop are correct, that would cause the liquidation of most of Vietnam’s coffee stocks and therefore dictate, the necessity for a large new follow on robusta coffee crop to come into play at the end of next year. In the meantime, and until at least the middle of next year, one would expect global robusta coffee supply to remain relatively tight and by nature, somewhat supportive for the medium to longer term fortunes of the related London terminal market.

The November to December contracts arbitrage between the London and New York markets narrowed on Friday, to register this at 62.34 usc/Lb., while this equates to a 43.04% 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 decrease by 1,065 bags on Friday; to register these stocks at 1,283,799 bags. There was meanwhile a larger in volume 5,000 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 9,869 bags.

The commodity markets were mixed but many markets came under some modest pressure on Friday with the renewed muscle of the U.S. Dollar in play, in line with the rising speculation that the U.S. Federal Reserve Bank is now becoming more likely to raise Interest rates during their next meeting on the 21st. September. This contributed to a late in the day softening of the overall macro commodity index, which had a marginally softer day. The U.S. Oil, Natural Gas, Sugar, Coffee, Gold and Silver markets had a day of buoyancy and the Orange Juice market was steady for the day, while the Brent Oil, Cocoa, Cotton, Copper, Wheat, Corn and Soybean markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.20% lower; to see this Index registered at 417.86. The day starts with the U.S. dollar showing some degree of buoyancy in early trade and trading at 1.313 to Sterling and 1.120 to the Euro, while North Sea Oil is steady in early trade and trading at 49.50 per barrel.

Following a couple of minutes’ dip in value for the New York market, the London market and New York markets opened the day on Friday with modest buoyancy and maintained this positive stance into the early afternoon trade. The afternoon brought with it increased buoyancy for both markets and with the London market perhaps encountering some book squaring ahead of the Bank Holiday long weekend that comes with today’s Public Holiday in the UK, to see the London market hold onto most of its gains through to the close, but with the New York market and perhaps with the negative influences of a late in the day decline in the value of the Brazil having an influence shed most of its gains. The London market ended the day on a positive note and with 78.6% of the earlier gains of the day intact, while the New York market ended the day on a modestly positive note, but having shed 87.3% of the earlier gains of the day by the close. This close with the New York market faltering near to the end of the day and the Brazil real now trading at a weaker 3.26 to the U.S. dollar, is unlikely to inspire little better than a near to steady start for early trade for the late start scheduled for today for the New York market that shall trade solo for the day, against the prices set on Friday, as follows:

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

SEP 1783 + 22                                 SEP 143.90 + 0.40
NOV 1819 + 22                               DEC 144.85 + 0.40
JAN 1838 + 17                               MAR 148.00 + 0.40
MAR 1854 + 17                             MAY 149.90 + 0.40
MAY 1867 + 17                               JUL 151.55 + 0.40
JUL 1878 + 17                                 SEP 153.05 + 0.40
SEP 1890 + 17                                DEC 155.15 + 0.50
NOV 1903 + 17                             MAR 157.10 + 0.45
JAN 1912 + 17                               MAY 158.20 + 0.45
MAR 1919 + 17                               JUL 159.20 + 0.45