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

Coffee Market Report

09 Sep 2016
The Brazil governments Crop Supply Agency sold approximately 93% or 64,833 bags of their aged arabica coffee stocks in their auction yesterday, with these coffees being taken up mostly by domestic roasters. These price competitive coffees assisting to counter the relatively high prices that the roasters are presently having to pay for new crop coffees. Particularly so for the tight in supply new crop conilon robusta coffees that follows the smaller new conilon crop this year, which has likewise resulted in a surge in demand for low grade arabica coffees from the Brazil domestic roasting industry.

The State owned National Weather Service in the U.S.A. have stepped back from their earlier view for the changes for a developing La Nina for the last quarter of 2016 and the first quarter of 2017, to now indicate that based on the past few weeks of data that conditions within the Pacific Ocean are more likely to be neutral. Albeit that they say it is not impossible, that the La Nina phenomenon could occur but seemingly if it does so, not in any intense manner.

This brings to the fore the probability of normal rain conditions for the Pacific Rim producers and thus, eliminates the influence of some of the earlier scare stories of damages to the longer term crop out of Colombia, Peru and Indonesia. It does however as these El Nino and La Nina weather phenomenon’s have a longer reach than the Pacific Rim countries, lessen the chance for above normal rain conditions in South East Brazil and the news might well increase the concerns at present, over the prevailing dry conditions in the Conilon robusta coffee regions in south east Brazil.

Concern over rain or the lack of it in Brazil is in the meantime assisting to buoy the coffee markets for the present, but it is starting to look like the markets might be somewhat overbought and that the New York market in particular with arabica coffee supply not seen to be that tight, likely to encounter some volumes of profit taking. However, until such time as there are good rainfall reports out of Brazil, one might think that the downside for the markets might be somewhat limited.

Brazil weather issues aside there is little in the way of striking news coming to the fore for the coffee markets at present, as there are no other factors of concern for the main coffee producer blocs at present. But there is apparently quite some post-holiday consumer market industry catch up buying activity due for the markets, which is a modestly supportive factor for the markets and ahead of the price fixation selling pressure that would come later in the year with the advent of the new Central American and Vietnam crops.

The November to December contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 67.49 usc/Lb., while this equates to a 43.57% 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 with the exchange were seen to increase by 184 bags yesterday; to register these stocks at 1,272,192 bags. There was meanwhile, a larger in volume 3,675 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 4,356 bags.

The prospects for a U.S.A. increase in interest rates this month are no longer looking to be likely, while the economic figures from Europe are flat for the present and with some improved growth reports from China coming to the fore, the dollar is marginally softer and is assisting to buoy many of the commodity markets. While an improved performance for the oil markets yesterday, contributed to a positive track for the overall macro commodity index yesterday. The Oil, Natural Gas, London robusta Coffee, Copper, Orange Juice, Wheat and Corn markets had a day of buoyancy and the New York arabica Coffee market was steady, while the Sugar, Cocoa, Cotton, 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 0.71% higher; to see this Index registered at 423.29. The day starts with the U.S. dollar near to steady in early trade and trading at 1.333 to Sterling and 1.128 to the Euro, while North Sea Oil is near to steady in early trade and trading at 49.05 per barrel.

The London and New York markets opened the day yesterday on a modestly positive note, but with the New York market soon attracting some selling pressure and dipping back to below par, while the London market maintained its buoyancy and with both markets taking this mixed track into the early afternoon trade. As the afternoon progressed and with trading volumes picking up the New York market came under further pressure to extend its losses, while the London market retained its buoyancy. The New York market did however bounce back off its lows and claw its way back to par, while the London market with some degree of fundamental thigh supply factors in play, maintained its positive track. The London market continued to end the day on a positive note and with 88.2% of the earlier gains of the day intact, while the New York market ended the day on a close to steady note and having recovered 89.5% of the earlier losses of the day by the close. This close and with the technical picture looking positive for both markets is likely to inspire a cautious near to steady start for the markets for early trade today against the prices set yesterday, as follows:

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

SEP 1922 + 20                                 SEP 153.70 – 0.15
NOV 1927 + 15                              DEC 154.90 – 0.20
JAN 1949 + 15                               MAR 158.15 – 0.15
MAR 1961 + 14                             MAY 160.05 – 0.05
MAY 1967 + 11                                JUL 161.80 + 0.05
JUL 1973 + 11                                  SEP 163.15 + 0.05
SEP 1978 + 7                                   DEC 164.95 + 0.05
NOV 1990 + 7                                MAR 166.60 + 0.05
JAN 1999 + 7                                 MAY 167.60 unch
MAR 2006 + 7                                  JUL 168.60 unch