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

Coffee Market Report

12 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 increase their net long position within the market by 39.20% during the week of trade leading up to Tuesday 6th. September; to register a net long position of 38,718 Lots on the day. This net long position which is the equivalent of 10,976,381 bags has most likely been slightly eroded, following the period of mixed but overall finally on Friday’s negative trade that followed.

This number relatively large long reported albeit that there might have been a degree of liquidation on Friday last week, tends to contribute to the speculation that the New York coffee market is somewhat over bought. This most probably and following Friday’s losses and as there really is no fundamental evidence as of yet that points to a potential tightening of medium term arabica coffee supply, is possibly and accompanied by some opportunist producer price fixation selling, going to contribute to the New York market remaining under a degree of follow through negative pressure.

The London market does mostly tend to track any sharp direction that is set by the New York market, but with many fundamental reasons to believe in tight longer term robusta coffee supply, one might think that the London market might be due for a less aggressive negative correction. Rather that unless there are some unforeseen weather related issues that might come to the fore to threatened longer term arabica coffee production, that the arbitrage between the New York and London markets might start to narrow.

The November to December contracts arbitrage between the London and New York markets narrowed on Friday, to register this at 64.56 usc/Lb., while this equates to a 42.71% 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 decrease by 1,100 bags on Friday; to register these stocks at 1,271,092 bags. There was meanwhile, a similar in volume 1,007 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 5,363 bags.

The commodity markets along with the equity markets and with some renewed muscle for the U.S. dollar that came with fresh U.S. interest rate hike speculation, had a soft day on Friday. While with the decline in Oil markets contributing rather aggressively, the overall macro commodity index took a softer track for the day. The Orange Juice, Corn and Soybean markets nevertheless had a day of buoyancy, while the Oil, New York Coffee and Cocoa markets had a very soft day and the Natural Gas, Sugar, London robusta Coffee, Cotton, Copper, Wheat, 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 1.11% higher; to see this Index registered at 418.60. The day starts with the U.S. dollar near to steady in early trade and trading at 1.327 to Sterling and 1.124 to the Euro, while North Sea Oil is tending softer in early trade and trading at 46.80 per barrel.

The London market opened the day on a steady note, while the New York market started the day on near to steady note on Friday. But this was short lived and while the New York market started to slide back further into negative territory, the London market followed suit in a more modest fashion to likewise join the New York market on a softer negative track and with this following through into the afternoon trade. The more volatile New York market with the perception of the markets being somewhat over bought contributing to negativity territory and along with the negative influences of the softer macro commodity index extended its gains and followed by the London market, but with both markets hitting a mid-afternoon low to see the London market recover some of its losses, while the New York market started on a sideways track for the rest of the day’s trade. The London market ended the day on a soft note and with 54.5% of the earlier losses of the day intact, while the New York market ended the day on a very soft note and with 86.2% of the earlier losses of the day intact. This softer close and with the thought that their might be more corrective and speculation due to come for the New York market and accompanied by a somewhat negative technical picture that has developed, is likely to inspire little better than a near to steady start for the markets for early trade today against the prices set on Friday, as follows:

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

SEP 1903 – 19                                 SEP 149.95 – 3.75
NOV 1909 – 18                               DEC 151.15 – 3.75
JAN 1930 – 19                               MAR 154.35 – 3.80
MAR 1944 – 17                             MAY 156.25 – 3.80
MAY 1954 – 13                                JUL 158.00 – 3.80
JUL 1962 – 11                                  SEP 159.40 – 3.75
SEP 1970 – 8                                   DEC 161.25 – 3.70
NOV 1982 – 8                                MAR 162.95 – 3.65
JAN 1991 – 8                                  MAY 163.95 – 3.65
MAR 1998 – 8                                  JUL 164.95 – 3.65