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


I. & M. Smith (Pty) Ltd.

Coffee Market Report

15 Dec 2016

The Vietnam Customs Authority have reported that the countries coffee exports of mostly robusta coffees for the month of November were a relatively modest 1.91 million bags, but it was nevertheless a volume that exceeded many price trade and industry expectations. Albeit that it fell marginally below the 2 million bags, that the government had forecasted for the month.

The bid by the domestic roasting industry in Brazil and particularly so on the part of the exporters of value added soluble coffees, is seemingly falling upon favourable ears within the countries government, with the Agricultural Ministry having voiced their recommendation that this should be allowed. However, and while the decision is still under debate and with opposition expected from the coffee farming sector of the country which would delay any decision, the indication is that a positive decision would be restricted to a relatively modest 200,000 bags per month.

One might imagine that with the tight internal market supply of conilon robusta coffees that has inflated conilon prices in the recent months, has been inflating the prices of the countries soluble coffee imports and has been threatening to the good market share that Brazil soluble coffees has built up within many consumer markets. Thus, with this industry accounting for exports of the equivalent of close to 3 million bags of value added coffee per annum, the Brazil government would be somewhat on the side of the coffee roasting industry.

This said the Brazil coffee farmers have always used the threat of imported coffee diseases and the greater threat that this brings to the mainstream and high volume Brazil coffee farming industry and its leading position in global coffee supply, as reason to not allow coffee imports. Thus, while there might be short term financial rewards in terms of maintaining the countries share of soluble coffee sales into the consumer markets, the coffee farmers still have a strong argument and one might think that there still remains uncertainty on the matter.

One might comment that with medium term global robusta coffee supply already tight and due to remain so until at least May next year, that even if the volumes that might head towards Brazil would most likely be modest, that it would further tighten up supply to the consumer markets and assist to buoy the relative fortunes of the London market for the first quarter of next year. But if the agreement is limited to only 200,000 bags per month and from January onwards and should the next conilon robusta crop prove to be more substantial than this year’s dismal crop, the interest in imported robusta coffees might start to wane by May next year and limit the imports to little more than 1 million bags.

The March to March contracts arbitrage between the London and New York markets broadened yesterday, to register this at 51.03 usc/Lb., while this equates to a 35.40% price discount for the London robusta coffee market. This narrowing arbitrage is now becoming less of 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 increase by 1,395 bags yesterday; to register these stocks at 1,248,137 bags. There was meanwhile a larger in number 4,653 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 31,828 bags.

The commodity markets with most players having already factored in the potential effects of the since confirmed U.S. interest rate hike on the value of the dollar, had a mixed day and with the overall macro commodity index taking a softer track for the day. The Natural Gas, Cocoa, Coffee, Cotton, Copper, Gold and Silver markets had a day of buoyancy, while the Oil, Sugar, 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 0.14% lower; to see this Index registered at 424.01. The day starts with the U.S. dollar showing buoyancy and trading at 1.253 to Sterling and 1.050 to the Euro, while North Sea Oil is steady and selling at 51.95 per barrel.

The London and New York markets started the day yesterday on a modestly softer note, but with both markets recovering and moving back into positive territory in early afternoon trade. Both markets came under pressure and briefly dipped back into negative territory before the New York market once again started on a steady upside track, while the London market struggled to hold on to its positive stance and took a somewhat erratic sideways track that saw the market taking a couple of bounces off par through to the close. The London market ended the day on a modestly positive note and with 46.7% of the earlier gains of the day intact, while the New York market ended the day on a positive note and with 66.7% of the earlier gains of the day intact. This close assists to buoy confidence within the markets but one might think that the firmer nature of the U.S. dollar might dampen some spirits and indicate only a near to steady start for early trade today, against the prices set yesterday, as follows:

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

JAN 2065 + 12                                                   DEC 140.25 + 1.35
MAR 2053 + 7                                                  MAR 144.15 + 1.30
MAY 2059 + 6                                                  MAY 146.40 + 1.30
JUL 2062 + 6                                                      JUL 148.60 + 1.30
SEP 2064 + 6                                                      SEP 150.50 + 1.30
NOV 2065 + 5                                                   DEC 153.40 + 1.40
JAN 2069 + 5                                                   MAR 156.05 + 1.40
MAR 2079 + 5                                                  MAY 157.75 + 1.40
MAY 2095 + 5                                                    JUL 159.35 + 1.40
JUL 2113 + 5                                                      SEP 161.00 + 1.40