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

Coffee Market Report

05 Sep 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 0.06% during the week of trade leading up to Tuesday 30th. August; to register a net long position of 27,816 Lots on the day. This net long position which is the equivalent of 7,885,713 bags has most likely been once again increased, following the period of mixed but overall more positive trade which has since followed.

The Colombian government with the peace deal having been concluded with the country’s leading rebel group FARC have voiced confidence that with the once rebel controlled districts opening up to normal trading conditions, that it shall inspire many farmers to start growing coffee. These farmers taking advantage of the developments in terms of farm husbandry and the availability of new higher yielding and disease resistant coffee varieties, to look to establishing good yielding and profitable coffee farms. This the Colombian Finance Ministry speculate, could assist to see Colombia increase its annual coffee crops by in excess of 33% over the next four to five years and target an impressive 20 million bags of coffee per annum.

One might comment that perhaps with coffee being a relatively non-perishable agricultural product and with the previously FARC dominated remote rural districts being far from the normal food preserving infrastructure, it might make coffee an attractive crop to grow. Coffee being an easy agricultural commodity to store and transport, with a shelf life that provides more than adequate time in hand, to market their produce in a profitable manner. Thus albeit that a 33% factor might be seen to be somewhat ambitious, there is with the country having a historic coffee farming culture, much merit in the speculation for Colombia to increase its areas of coffee farming activity.

Meanwhile with the new Brazil crop almost complete there are now good volumes of well-conditioned and settled in cup quality new crop arabica coffees becoming available to the countries exporters, most of whom have forward sales commitments that they need to cover. Thus one might expect that with stocks in hand that the internal market in Brazil shall experience some degree of price resistance, as farmers bid to pressure exporters prices higher. This is likely to result in some degree of buoyancy in terms of the price differentials that exporters shall demand for new arabica coffee business out of Brazil for the coming months, as with farmers having had negligible carryover stocks into the new crop, they have time in hand to bring their new crop coffee stocks to the market.

The November to December contracts arbitrage between the London and New York markets narrowed on Friday, to register this at 66.81 usc/Lb., while this equates to a 44.13% 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 4,480 bags on Friday; to register these stocks at 1,276,364 bags. There was meanwhile a smaller in volume 333 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 8,010 bags.

The commodity markets had a mixed but mostly positive day on Friday, as disappointing U.S.A. manufacturing and employment data had some impact upon the fortunes of the U.S. dollar and with the result that the Oil markets taking the lead, to buoy the fortunes of the overall macro commodity index for the day. There was also with today’s Labour Day public holiday for the U.S.A. markets a degree of pre long weekend book squaring in play, which added to the volumes for many markets. The Oil, Natural Gas, Sugar, Cocoa, London robusta Coffee, Copper, Wheat, Corn, Soybean, Gold and Silver markets had a day of buoyancy and the New York arabica Coffee market was steady for the day, while the Cotton and Orange Juice markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.37% higher; to see this Index registered at 414.72. The day starts with the U.S. dollar near to steady in early trade and trading at 1.332 to Sterling and 1.118 to the Euro, while North Sea Oil is tending softer in early trade and trading at 45.80 per barrel.

The London market started the day on Friday on a steady note, while the New York market following an opening dip soon experienced buoyancy and with this having some influence for both markets to take a positive track into the early afternoon trade. As the afternoon progressed the New York market came under a degree of pressure and while the London market continued to attract support, the New York market moved back to trade either side of par. The markets continued with a good degree of uncertainty and with the London market attracting late in the day support, while the New York market despite good volumes of trade struggled to maintain a steady close for the day. The London market ended the day on a positive note and with 92.9% of the gains of the day intact, while the New York market ended on par for the day. The London market shall trade solo for the day today and thus one might expect little in the way of excitement for the market but with perhaps the New York market having closed ahead of the long weekend on only a steady note, there might be some modest selling pressure for early trade today for the London market against the prices set on Friday, as follows:

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

SEP 1841 + 15                                 SEP 150.10 unch
NOV 1865 + 13                               DEC 151.40 unch
JAN 1885 + 16                               MAR 154.50 unch
MAR 1901 + 17                             MAY 156.25 – 0.05
MAY 1914 + 17                               JUL 157.75 – 0.10
JUL 1925 + 17                                 SEP 159.05 – 0.15
SEP 1937 + 17                                DEC 161.05 – 0.15
NOV 1950 + 17                              MAR 162.95 – 0.15
JAN 1959 + 17                                MAY 164.05 – 0.10
MAR 1966 + 17                                 JUL 165.10 – 0.10