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


I. & M. Smith (Pty) Ltd.

Coffee Market Report

27 Oct 2016

There was little in the way of striking news coming to the fore for the coffee markets yesterday, with the markets already discounting the well accepted market supportive fact that with the prospects for the rain delayed new Vietnam new crop being potentially smaller and carryover stocks presently being liquidated, that there shall be tight robusta coffee supply through to at least May and the impact of the new Brazil conilon robusta coffee crop and the new Indonesian robusta coffee crop. A factor that one shall expect to continue to buoy the prices for the related London market, for the foreseeable future.

This fundamental support for the London market is however vulnerable to some degree of influence from the more speculative support that is behind the positive nature of the New York market, which is presently buoyed by the extensive long positions of the funds within this market. This robust fund and speculative support and despite the forecasts that there shall be increased consumer market supply of fine washed arabica coffees due for the October 2016 to September 2017 coffee year, gains support from the concerns over the prospects for the size of the next 2017 Brazil arabica coffee crop that is mostly made up by natural process arabica coffees.

The question not being only what size shall this next natural arabica coffee crop from Brazil be, but what shall be the volume of carryover stocks at hand of these coffees, by the time this crop stats to impact in August next year. In this respect and following the dismal size of this year’s conilon robusta coffee crop and with the domestic roasting industry being forced to supplement the shortage with increased percentages of arabica coffees, it is most likely that the carryover stocks of Brazil arabica coffees into the next crop shall be negligible at best. Thus, there is for the present, some degree of longer term justification for confidence in the fortunes of the New York arabica coffee market.

Following the recent rally within the coffee markets there are however signs that both markets are somewhat overbought and are susceptible to some degree of profit taking and producer price fixation selling pressure, but for the present there are no signs that such a correction would be significantly damaging to the present trading range. While with consumer market industries seemingly still needing to do some catch up buying, one would expect to see some underlying support due for both markets.

The March to March contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 68.50 usc/Lb., while this equates to a 40.97% 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 increase by 543 bags yesterday; to register these stocks at 1,275,014 bags. There were meanwhile a larger in number 3,631 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 23,126 bags.

These stocks remain dominated by the stocks held within the European warehouses of the exchange in Antwerp, Barcelona, Bremen and Hamburg, who account for 69.97% of the stocks and with Antwerp remaining the dominant centre of these European based stocks, while the certified warehouses in the U.S.A. in Houston, Miami, New Orleans and New York are heavily weighted towards the stocks held in New York.

In terms of origins of these Certified coffee stocks it is the producer bloc of Mexico and Central America who remain dominant, accounting for 437,149 bags to these stocks and followed by Colombia who contribute 343,567 bags to these stocks and Peru who contribute 256,902 bags to these stocks. The African producers Burundi, Rwanda, Tanzania and Uganda contribute 202,985 bags to these stocks and India contributes 30,961 bags to these stocks, while Brazil contributes a modest 3,450 bags to these stocks.

The commodity markets had a mixed but overall softer day yesterday, despite the softening of the U.S. dollar and the overall macro commodity index took a softer track for the day. The Cocoa, Cotton, Copper, Orange Juice, Wheat, Corn and Soybean markets had a day of buoyancy and the London robusta Coffee market was steady, while the Oil, Natural Gas, Sugar, New York arabica Coffee, 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 0.03% lower; to see this Index registered at 421.77. The day starts with the U.S. dollar steady and trading at 1.222 to Sterling and 1.091 to the Euro, while North Sea Oil is showing a degree of buoyancy and is selling at 48.75 per barrel.

The London market started the day yesterday with a degree of buoyancy, while the New York market attracted selling pressure and started the day on a softer note. The London market soon started to falter and to see both markets taking a modestly softer track into the early afternoon trade but as the afternoon progressed, there was renewed support coming to the fore within both markets and to see the markets move back into positive territory. This positive surge was however short lived and while the London market took and erratic sideways track trough to the close, the New York market took a downside track through to modest negative territory. The London market ended the day on a steady note, while the New York market ended the day on a negative note and with 50% of the earlier losses of the day intact. This close and following the uncertain direction taken by the markets yesterday paints a likewise uncertain picture and one might expect to see a cautious and hesitantly near to steady start for early trade today against the prices set yesterday, as follows:


NOV 2154 + 1                                   DEC 163.70 – 0.80
JAN 2178 unch                                 MAR 167.20 – 0.70
MAR 2176 unch                               MAY 169.35 – 0.65
MAY 2181 + 4                                    JUL 171.15 – 0.65
JUL 2181 + 7                                      SEP 172.80 – 0.60
SEP 2183 + 12                                   DEC 174.95 – 0.55
NOV 2186 + 12                                 MAR 176.65 – 0.55
JAN 2192 + 20                                   MAY 177.60 – 0.50
MAR 2201 + 20                                   JUL 178.45 – 0.50
MAY 2204 + 20                                   SEP 179.30 – 0.50