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

Coffee Market Report

26 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 4.69% during the week of trade leading up to Tuesday 20th. September; to register a net long position of 39,951 Lots on the day. This net long position which is the equivalent of 11,325,931 bags has most likely been slightly eroded, following the period of mixed but overall trade that has since followed.

The Centre for Exports in Nicaragua have reported that the country’s coffee exports for the month of August were 38,778 bags or 32.59% higher than the same month last year, at a total of 157,751 bags. This improved performance has contributed to the countries cumulative coffee exports for the first eleven months of the present October 2015 to September 2016 coffee year to be 121,948 bags or 7.09% higher than the same period in the previous coffee year, at a total of 1,842,519 bags.

This improved performance from Nicaragua is appropriated by the Centre for Exports in Nicaragua to the combination of fair weather and improved farm husbandry, but while with the pending new crop cherries within the Mexican and Central American producer bloc are encouraging forecasts for an improved new November to March crop for the leading players Honduras, Guatemala and Mexico, there are mixed forecasts coming to the fore for Costa Rica, Nicaragua, El Salvador, Dominican Republic and Panama.

However even though the latter five are not anticipating much in the way of improved crops from the new harvest, the former forecasts for the former three and higher volume producers, is so far indicating an approximate 6% larger overall production of mostly arabica coffees for the coming crop and for the October 2016 to September 2017 coffee year, of close to 18 million bags.

This improved supply of mostly fine washed arabica coffee coffees for the coming coffee year from the Mexican and Central American producer bloc, to be joined by potentially improved supply of fine washed arabica coffees from Colombia and Peru and to elevate any fears of tightness of supply for the quality end of the coffee market. The question is therefore now focused upon the prospects for the longer term supply of natural arabica coffees from Brazil that will be related to the next 2017 Brazil crop and the shorter term robusta coffees supply, that is related to the more modest robusta coffee crops from Brazil and Indonesia this year and to the speculation over a 5% to 10% smaller new robusta coffee crop due to start being harvested by Vietnam next month. Thus contributing to the prevailing close watch upon the Brazil rainfall reports and the resulting erratic volatility of the coffee markets, which are have been maintaining their new and more buoyant trading range over the past few weeks.

The November to December contracts arbitrage between the London and New York markets narrowed on Friday, to register this at 62.22 usc/Lb., while this equates to a 41.09% 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 58 bags on Friday; to register these stocks at 1,263,245 bags. There was meanwhile a larger in number 1,683 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 12,921 bags.

The commodity markets had an overall soft day on Friday and with the overall macro commodity index taking a softer track for the day, despite the usually supportive influences of a softer U.S. dollar being in play. The Sugar and Copper markets did however buck the trend and have a day of buoyancy, while the Oil, Natural Gas, Cocoa, Coffee, Cotton, 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 1.21% lower; to see this Index registered at 421.20. The day starts with the U.S. dollar steady in early trade and trading at 1.297 to Sterling and 1.123 to the Euro, while North Sea Oil is showing a degree of buoyancy in early trade and trading at 45.55 per barrel.

The London and New York markets opened the day on Friday taking a modestly softer track and maintain this track into the afternoon trade, when perhaps with the added influences of the negative nature of the overall macro commodity index, the New York market and with the assistance of sell stops coming into play, shed some more weight. This was followed by some more selling pressure coming to the fore for the London market and with both markets taking a soft sideways track through to the close of the day and the week. The London market ended the day on a soft note and with 87.8% of the earlier losses of the day intact, while the New York market ended the day on a very soft note and with 97.5% of the earlier losses of the day intact. This close does little to inspire confidence, but one might expect to see some degree of hesitant caution and perhaps a thinly traded steady start for early trade today against the prices set on Friday, as follows:

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

SEP 1961 – 36
NOV 1966 – 36                                   DEC 151.40 – 3.85
JAN 1988 – 35                                   MAR 154.60 – 3.90
MAR 1997 – 36                                 MAY 156.45 – 3.85
MAY 2003 – 36                                    JUL 158.05 – 3.85
JUL 2010 – 35                                      SEP 159.45 – 3.80
SEP 2019 – 35                                     DEC 161.30 – 3.80
NOV 2027 – 35                                  MAR 163.05 – 3.85
JAN 2037 – 35                                    MAY 164.10 – 3.85
MAR 2044 – 35                                     JUL 165.10 – 3.85