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


I. & M. Smith (Pty) Ltd.

Coffee Market Report

10 Oct 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 14.73% during the week of trade leading up to Tuesday 4th. October; to register a net long position of 31,973 Lots on the day. This net long position which is the equivalent of 9,064,204 bags has most likely been little changed to perhaps marginally increased, following the period of mixed but overall slightly more positive trade that has since followed.

Exporters in Vietnam fortunately still hold relatively good carryover stocks of robusta coffees to support their forward sold export commitments for the months of October and November, as the summer and autumn rain season is looking to perhaps even extend into early November, which shall cause some delays in the start of the new crop harvest. Thus for the present and against the relatively tight supply of alternative robusta coffees that comes with the dismal Brazil conilon robusta crop and the tighter Indonesian robusta coffee supply, there are no major concerns over short term robusta coffee supply. Albeit that with the forecasts pointing to a smaller new Vietnam new crop, there remain concerns over longer term tightness in supply of robusta coffees to the consumer markets.

The traditionally conservative official Statistical Department of Brazil IBGE have seemingly increased their 2016 new Brazil crop assessment by 2.3% to now indicate a figure of 48.9 million bags, which with the application of an approximate 12% reality adjustment factor, would underpin the usually more reliable trade and industry forecasts that come in close to 55 million bags. Thus little has changed in terms of Brazil news where with regular rainfall reports now coming to the fore, there are not too many concerns developing over the prospects for a good flowering and carry for the next 2017 crop. It is early day’s though and with Brazil carryover stocks low and the rain season still in its infancy, the Brazil news cannot be seen to be bearish for market sentiment.

The National Coffee Congress in Costa Rica has failed to overturn the 28-year ban on the growing of robusta coffee in the country, due to the positive view by many to allow for robusta coffee farming in some of the lower grown districts of the country, not attracting the necessary two thirds majority. This does not however detract from the fact that robusta coffee farming is becoming more active in many of the neighbouring Central American countries, within the lower grown districts of these countries.

However, these developments in Mexico and Central America that presently assist to fuel regional soluble coffee manufacture and with some contribution to the speciality sectors of the consumer markets, are not likely to contribute significantly too general global robusta coffee supply for the short to medium term. Albeit that in the coming years there is the potential that the region and perhaps also within many of the low grown districts of Colombia, there might be expected to be a larger robusta farming culture developing.

The March to March contracts arbitrage between the London and New York markets broadened on Friday, to register this at 59.04 usc/Lb., while this equates to a 39.01% price discount for the London robusta coffee market. This arbitrage is perhaps becoming a less attractive factor for the roasters who have considered robusta coffees to be an opportunist discount component, within their mostly arabica coffee blends.

The Certified washed Arabica coffee stocks held against the New York exchange were seen to decrease by 550 bags on Friday; to register these stocks at 1,256,347 bags. There was meanwhile a larger in number 3,332 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 17,897 bags.

The commodity markets with a relatively firm U.S. dollar in play were mostly lacklustre in their performance on Friday and with U.S. jobs data still taking a positive track and contributing to the speculation for a nearby U.S. dollar rate hike, which resulted in a sideways track for the overall macro commodity index for the day. The Natural Gas, Sugar, Coffee, Copper, Corn, Soybean, Gold and Silver markets had a day of buoyancy, while the Oil, Cocoa, Cotton, Orange Juice and Wheat markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.08% higher; to see this Index registered at 416.36. The day starts with the U.S. dollar steady in early trade and trading at 1.239 to Sterling and 1.118 to the Euro, while North Sea Oil is tending softer in early trade and trading at 49.65 per barrel.

The London market started the day on Friday with a degree of modest buoyancy, while the New York market tended marginally softer. Both markets took a hesitant and uncertain softer track into the early afternoon trade but with support starting to come to the fore as the afternoon progressed, to see both market moving back into positive territory and adding value to their modest gains towards an erratic but positive sideways track for the rest of the day. The London market ended the day on a positive note and with 83.3% of the earlier gains of the day intact, while the New York market ended the day on a bit of a late dip, with only 52.5% of the earlier gains of the day intact. The positive nature of the close might assist to be supportive for a steady start to early trade today against the prices set on Friday, as follows:


NOV 2001 + 15                                     DEC  148.00 + 1.60
JAN 2029 + 17                                      MAR 151.35 + 1.60
MAR 2035 + 14                                     MAY 153.30 + 1.60
MAY 2037 + 12                                       JUL 155.10 + 1.65
JUL 2043 + 12                                         SEP 156.75 + 1.60
SEP 2050 + 12                                        DEC 159.05 + 1.60
NOV 2058 + 12                                     MAR 161.05 + 1.60
JAN 2068 + 12                                      MAY 162.15 + 1.60
MAR 2075 + 12                                      JUL 163.15 + 1.60
MAY 2078 + 12                                      SEP 164.15 + 1.60