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


I. & M. Smith (Pty) Ltd.

Coffee Market Report

02 Dec 2016

With the month of November past, the National Coffee Institute in Honduras have reported that the countries coffee exports for the month were 106,442 bags or 118.85% higher than the same month last year, at a total of 196,000 bags. This improved number that was inflated by the export of carryover stocks from the past crop rather than new crop coffees has contributed to the cumulative coffee exports for the first two months of this new October 2016 to September 2017 coffee year to be 170,796 bags or 156.27% higher than the same period in the previous coffee year, at a total of 280,088 bags.

This news comes to the fore from Honduras ahead of the forecasted 9% larger new crop that has already started to be harvested and with forecasts for exports for the coffee year to exceed 5.5 million bags, to contribute to dampening speculative spirits for the related New York arabica coffee market. Spirits that are being further dampened by the perspective that there shall likewise be larger new crops due from Colombia, Mexico, Guatemala and Peru.

The preliminary coffee export figures for the month of November have been announced in Brazil with coffee exports for the month reported to be 116,624 bags or 3.74% lower than the same month last year, at a total of 2,999,483 bags. This dip is however not significant in terms of Brazil arabica coffee supply and a quality of coffee that has a dedicated support from the consumer market industries, as the decline is entirely related to the very modest exports of conilon robusta coffees, following this year’s partial drought affected dismal conilon crop.

Thus with confidence on the wane in terms of the longer term influence that the potential surplus arabica coffee supply shall have in terms of the related New York arabica coffee prices as opposed to the perspective that following the partial failure of the new Brazil conilon crop and the tighter supply of Indonesian robusta coffee supply for the next five months, the arbitrage between the New York arabica coffee market and the London robusta coffee market can be expected to continue to narrow. Albeit that while there are good fundamental reasons to believe in the fortunes of the London robusta coffee market, that this is not sufficient to stop this market from tracking to a lesser degree, the New York market south.

The March to March contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 54.95 usc/Lb., while this equates to a 37.92% price discount for the London robusta coffee market. This arbitrage remains an 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 275 bags yesterday; to register these stocks at 1,257,108 bags. There was meanwhile a larger in number 1,971 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 20,498 bags.

The commodity markets are somewhat focused upon next week’s meeting of the U.S. Federal Reserve Bank and the general perspective that this shall bring to the fore a rise in the U.S. interest rate, which has already been factored into value of the U.S. dollar. But while the robust nature of the dollar would be seen to be negative for commodities, the recent OPEC meetings and the resulting export limits has proved to be supportive for the Oil markets, to see the overall macro commodity index continuing on a positive track yesterday. The Oil, Natural Gas, Copper and Orange Juice markets had a day of buoyancy yesterday and the Cocoa market was near to steady for the day, while the Sugar, Coffee, Cotton, 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 0.36% higher; to see this Index registered at 421.27. The day starts with the U.S. dollar tending softer and trading at 1.262 to Sterling and 1.068 to the Euro, while North Sea Oil is tending softer and is selling at 51.65 per barrel.

The London market and New York markets started the day yesterday to the negative side of par, while the New York market posted some initial buoyancy, but with the London market soon recovering and moving back into modest positive territory, while the New York market slipped back to par. However, as the afternoon progressed and with the Americans entering the field of play and adding volume to the New York market, this market came under pressure and with the speculative and fund sector sell stops being triggered, the losses were accentuated and with the London market tracking the direction of the New York market, into negative territory. There was no relief for the markets and the downside track continued for the rest of the day’s trade, to see the markets tumble towards their soft close. The London market ended the day on a soft note and with 86% of the earlier losses of the day intact, while the New York market ended the day on a very soft note and with 95.8% of the earlier losses of the day intact. This close and with the fundamentals for the New York market somewhat bearish does little to inspire confidence and one might think that with the negative technical picture that the past couple of weeks have painted for the markets, that one can expect to see little better than a near to steady start for early trade today against the prices set yesterday, as follows:


JAN 1990 – 36                                                  DEC 141.80 – 5.70
MAR 1983 – 37                                               MAR 144.90 – 5.70
MAY 1992 – 35                                               MAY 147.20 – 5.70
JUL 1998 – 35                                                   JUL 149.35 – 5.70
SEP 2004 – 33                                                   SEP 151.35 – 5.60
NOV 2007 – 34                                                DEC 154.20 – 5.55
JAN 2008 – 36                                                 MAR 156.75 – 5.50
MAR 2017 – 36                                               MAY 158.15 – 5.50
MAY 2033 – 36                                                 JUL 159.25 – 5.50
JUL 2051 – 18                                                   SEP 160.20 – 5.45