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


I. & M. Smith (Pty) Ltd.

Coffee Market Report

31 Jul 2020
New weather forecasts emanating from Brazil show that dry weather is expected to continue across all coffee growing districts, there is the possible influence of a coastal wet system that may bring rains to the South and South East regions of the Brazil Coffee belt over the next few days. The month of July, which is historically Brazil’s driest month of the year, saw the Brazil Coffee Belt receive below average rainfall for the month. With the current harvest near completion in the Robusta Conilon areas and over the peak in the natural arabica areas. The next full moon, which is typically seen as a harbinger in cooler winter conditions, will be Monday next week. As August approaches and this month, the last of the seasonal winter months in Brazil, weather forecasters indicate temperate weather conditions for the next fortnight, to likely dampen any residual cool weather speculative activity within the coffee terminal markets. Speculative focus will soon be turning once more upon the longer-term forecasts and weather prospects for the onset of the new spring and summer rain season for Brazil, to come in the last quarter of the year, to trigger the flowering for the next 2021 crop.

There is news to come to the markets meanwhile, of an increase in covid-19 related cases in Vietnam, which has assisted to boost activity in the London market, this supported by speculative activity as well as ‘just in case’ buying sentiment. Availability of current crop Vietnam Robusta coffee has continued to tighten over the past months, this in a combination of strong internal price resistance as well as a measured approach to releasing coffees to the market. The country has mostly continued to trade without notable disruptions to supply chain throughout the covid-19 pandemic related months meanwhile, and one would think that the latest news of an increase in covid-19 related cases that are reported primarily in popular north eastern holiday destination areas, that this second wave which will no doubt be speedily contained; is unlikely to have a greater impact on business, trade or logistics from Vietnam.

The September to September contract arbitrage between the London and New York markets widened yesterday; to register this at 54.39 usc/Lb. This equates to 47.15% price discount for the London Robusta coffee market.

The Certified washed Arabica coffee stocks held against the New York exchange were seen to decrease by 3,175 bags yesterday to register these stocks at 1,594,963 bags, with 94.1% of these certified stocks being held in Europe at a total of 1,501,260 bags and the remaining 5.9% being held in the USA at a total of 93,703 bags. There was meanwhile no change to the number of bags pending grading for this exchange; to register these pending grading stocks at 4,675 bags.

It was a slightly softer day overall on the commodity markets yesterday, to see the overall macro commodity index taking something of a sideways track for the day. The Cocoa, Sugar and Coffee markets ended the day on a positive note. The Reuters Equal Weight Continuous Commodity Index that is related to 17 markets is 0.3596% higher; to see this index registered at 387.1548. The day starts with the U.S. Dollar steady, trading at 1.313 to Sterling, at 1.189 to the Euro and with the US Dollar buying 5.156 Brazilian Real.

The London and New York markets started the day yesterday trading a modest positive note, both markets continued on this firm path early in the morning session. As the afternoon progressed both the London and New York markets attracted a degree of buying support to see the markets gain momentum, this was short lived in the London and New York with the markets dropping back from the highs of the day, late in the afternoon session saw the New York market rebound to settle on a positive note for the day, while the London market settled on a close to par softer note for the day.

The London market ended the day on a modest close to par neutral note and with 23.53% of the earlier losses of the day intact, while the New York market ended the day on a very positive note and with 64.66% of the earlier gains of the day intact. This close and with the Brazil Real continuing to show signs of muscle, one might think this is likely to inspire a follow through steady start for early trade today, against the prices set yesterday, as follows:

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

SEP 1344 – 4                                                                         SEP 115.35 + 3.75
NOV 1358 – 2                                                                       DEC 118.25 + 3.75
JAN 1371 Unch                                                                     MAR 119.90 + 3.55
MAR 1385 + 1                                                                       MAY 120.80 + 3.45
MAY 1399 + 2                                                                       JUL 121.65 + 3.45
JUL 1415 + 3                                                                         SEP 122.40 + 3.40
SEP 1431 + 4                                                                         DEC 123.70 + 3.10
NOV 1448 + 4                                                                       MAR 125.10 + 2.90