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


I. & M. Smith (Pty) Ltd.

Coffee Market Report

29 Jul 2016

The Brazilian analyst Safras & Mercado who forecast the new Brazil crop at 54.9 million bags and made up by 42.8 million bags of arabica coffees and 12.1 million bags of conilon robusta coffees, has estimated that by Tuesday this week that 70% of this new crop had been harvested. Thus indicating that with the new conilon robusta coffee crop near to completion, that approximately 26 million bags of the new arabica coffee crop would have been harvested, which shall assist to fuel increasing volume of new crop arabica coffee exports from August and thereon.

This larger crop shall guarantee good volumes of Brazil arabica coffee supply to the consumer markets through to the next crop, but one might presume that with the dip in the conilon robusta coffee crop that in the past year had fuelled opportunist price competitive conilon exports to the robusta sector of the consumer market and the London certified robusta coffee stocks, that the overall Brazil coffee exports shall fall back for the coming October 2016 to September 2017 coffee year. This not a serious issue as while there is a dedicated consume market for the special cup qualities of Brazil arabica coffees, there is aside from the North American market no special interest in Brazil robusta coffees.

Meanwhile the weather conditions over the main coffee districts within Brazil remain mostly dry and are favourable conditions for new crop harvest which is in its peak for the arabica coffee farms, with the new crop looking to be mostly completed by the end of August and well ahead of the start of the new spring and summer rain season, which would traditionally come to the fore during the second half of September. The quality of this rain season now somewhat critical as with Brazil coffee stock coming into the new crop having been relatively low and the new crop due to only add a couple of million bags of arabica coffees to the stocks into the next 2017 harvest, the rains shall have to be good to support another good crop in 2017.

Following the earlier report that the Brazil Crop Supply Agency CONAB will auction 67,000 bags of their aged state arabica coffee stocks today; they have further announced that they will hold bi weekly auctions for the rest of this year and with the intent to liquidate 827,666 bags of their 1.37 million bags of government coffee stocks by the end of the year. These auctions which target the price sensitive domestic roasting industry do however set reserve prices and unless the roasters are prepared to pay up for the stocks, it is possible that this auction program might falter, as has been the case with previous auction programs.

A Reuters Poll to a host of coffee industry, traders and brokers has come to the fore with forecasts for further buoyancy for the coffee markets for the rest of the year and with a forecast for the New York washed arabica coffee market to end the year at around 160 usc/Lb., while the London robusta coffee market would end the year at US$ 1,985.00 per Metric ton. This poll by nature of the forecasted prices, indicating a 15% increase in value for the New York market for this year and an even more impressive 30% increase in value for the London robusta coffee market, for this year.

In terms of the leading coffee producers the Poll furthermore came to the conclusion that the new Brazil crop is due to come in at 55 million bags and thus at the higher end of the range of earlier forecasts, while the new Vietnam crop that would be an approximate 95 to 5 ratio of robusta and arabica coffees, would come in at 26.5 million bags. This later robusta figure if one is to take into account the 1.7 million bags Vietnam domestic market demand would indicate new crop export supply at only 24.8 million bags and therefore, only marginally higher than the coffee exports for the first ten months of this present coffee year.

Thus further indicating if this Poll is correct, that while Vietnam will have good levels of carryover stocks into the new crop that if the country is to maintain its present coffee supply of mostly robusta coffees to the consumer markets and with the tightness of supply from Brazil and Indonesia this is most probably the case, that global robusta coffee supply shall become tighter in the coming year. This is in terms of the Poll by nature a reflection of general market opinion, a supportive factor for the related London coffee market, which for the present is looking to have some longer term muscle.

One must however consider that the Poll did bring in a very wide range of numbers that had to be averaged and by nature of this range, which included weighted input from some price supportive market manipulative participants that one might need to be cautious about both the price and crop forecasts.

The September to September contracts arbitrage between the London and New York markets broadened yesterday, to register this at 59.91 usc/Lb., while this equates to a 42.15% 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 were seen to decrease by 2,475 bags yesterday; to register these stocks at 1,292,999 bags. There was meanwhile no change to the number of bags pending grading for this exchange; to register these pending grading stocks at 13,815 bags.

The commodity markets were mixed in trade yesterday with the U.S. dollar continuing to take a steady track for the day and with the overall macro commodity index, tending softer for the day. The Natural Gas, Coffee, Copper, Gold and Silver markets had a day of buoyancy, while the Oil, Cocoa, Sugar, Cotton, Orange Juice, Wheat, Corn and Soybean markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.27% lower; to see this Index registered at 417.83. The day starts with the U.S. dollar near to steady and trading at 1.318 to Sterling and 1.108 to the Euro, while North Sea Oil is near to steady in early trade and trading at 41.50 per barrel.

The London and New York markets started the day yesterday with modest buoyancy, but with the New York market slipping back into negative territory in early afternoon trade, while the London market retained its buoyancy. As the day progressed though and with the London market maintaining its modestly positive sideways track the New York market started to attract support and took a steady upside track back into positive territory. The London market ended the day on a positive note and with 56.2% of the earlier gains of the day intact, while the New York market ended the day on a positive note and with 73.1% of the earlier gains of the day intact. This close might be seen to be positive for sentiment but one might also see it as only hesitantly positive and with the possibility of some month end book squaring due for today, one might expect little better than a steady start for the markets for early trade today against the prices set yesterday, as follows:


JUL 1805 + 9
SEP 1813 + 9                                      SEP 141.60 + 0.40
NOV 1837 + 13                                  DEC 145.35 + 1.00
JAN 1854 + 13                                  MAR 148.30 + 1.00
MAR 1866 + 13                                MAY 150.05 + 1.05
MAY 1879 + 13                                  JUL 151.40 + 1.05
JUL 1891 + 13                                    SEP 152.70 + 1.10
SEP 1903 + 13                                   DEC 154.45 + 1.10
NOV 1922 + 13                                MAR 156.20 + 1.10
JAN 1931 + 13                                  MAY 157.15 + 1.10