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

Coffee Market Report

26 Nov 2015
The rains continue to come to south east Brazil and with most districts having a normal summer rain season with confidence in the medium term weather conditions for these districts being under pinned by the prevailing El Nino phenomenon within the Pacific Ocean, which usually brings with it increased rains for south east Brazil. Thus for the present there is little concern over the prospects for the next 2016 Brazil arabica coffee crop which is foreseen to be much improved, but with the eastern conilon robusta coffee farms within the state of Espirito Santo having not had such favourable rains, the prospects are for next year to bring with it only another relatively modest robusta coffee production from Brazil. Albeit that the overall crop for the coming year is already being forecasted to be approximately in excess of 10 million bags larger, at close to 60 million bags.

Meanwhile with the Brazil real having improved its value relative to the U.S. dollar for the end of last week and the first half of this week and despite some improvement in the price trading range of the reference prices of the New York arabica coffee market, the internal market selling activity within Brazil has slowed and with a degree of price resistance being shown by the farmers and coffee cooperatives. This lack of activity within the internal market in Brazil and with the corresponding relatively low volumes of exporter price hedge selling activity for arabica coffees within the New York market, having assisted towards some degree of buoyancy within the New York market.

With last week’s dip in value within the New York market having been quickly countered at the end of the week and with added buoyancy for the first half of this week, there would appear to be a degree of confidence coming to the markets that while the upside might be limited by large volumes of new crop arabica coffees soon due to come to the market, that perhaps this volatile market has seen its short to medium term lows. This more positive sentiment is perhaps assisting to bring consumer market industry buyers to the market and to take advantage of dips, to buy into the market to cover for medium term needs and to further add to the prevailing hesitant buoyancy.

It is however not so much the case for the London robusta coffee market, which still has the dark cloud of the significant carryover stocks of Vietnam robusta coffees hanging over the market, which does little to inspire much confidence within this market. Especially so as these robusta coffee stocks are poised to come to the market over and above what is generally perceived to be a larger new crop that is already in harvest and thus while the New York market is tending to show some sign of stability, the London market is looking fragile and susceptible to increased medium term selling pressure.

The question does however have to be and with the leading U.S.A. market on holiday today and with many players due to take a long weekend tomorrow, what might be the reaction within New York to the latest commitment of traders report next week, when one can expect to have seen the Speculative and the shorter term Managed Money fund sectors of the market to have reduced their net short positions within the market, if this shall once again dampen some spirits within the market. While one might guess that should the market once again stall that it shall bring with it increased volumes of producer price fixation hedge selling of the market out of Colombia and Central America, which might well be modestly negative for the market for the coming week. But only time can tell and one might not expect too much guidance from tomorrows trading activity during a shortened day of trade, post today’s Thanksgiving holiday in New York.

The March on March contracts arbitrage between the markets broadened yesterday, to register this at 54.70 usc/Lb., while this equates to a 43.57% price discount for the London robusta coffee market. This arbitrage remaining relatively attractive to roasters in comparison to arabica coffee prices, but is perhaps due to widen further in time and when Vietnam stocks start to impact in more volume upon the fortunes of the London market.

The Certified washed Arabica coffee stocks held against the New York exchange were seen to decrease by 1,689 bags yesterday; to register these stocks at 1,841,330 bags. There was meanwhile a larger in volume 3,922 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 7,855 bags.

The commodity markets were mixed in trade yesterday ahead of today’s Thanksgiving holiday in the U.S.A., but with the overall macro commodity index having another day of modest buoyancy. The Natural Gas, New York arabica Coffee, Cotton, Corn, Soybean and Platinum markets had a day of buoyancy, while the Oil, Sugar, Cocoa, Copper, Orange Juice, Wheat, 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 0.09% higher to see this Index registered at 384.34. The day starts with the U.S. Dollar steady in early trade and trading at 1.512 to Sterling and 1.062 to the Euro, while North Sea Oil is steady in early trade and is selling at 44.50 per barrel.

The London market started the day yesterday on a modestly softer note, while the New York market started the day with follow through modest buoyancy, which was the track taken for the day and within an environment of thin trade into the early afternoon trade. This brought with it though some light selling pressure over the New York market which fell back into negative territory, with the London market losing some weight and extending its losses. The New York market did however recover and once again take a positive track and one that was sustained through the rest of the pre-holiday trade, while the London market continued to flounder in negative territory. The London market ended the day on a soft note and with 69.2% of the earlier losses of the day intact, while the New York market ended the day on a positive note and with 77.8% of the earlier gains of the day intact. The New York market shall be closed today to leave the London market to trade solo for the day, but one might think that following the positive close in New York yesterday that this might restrain sellers within the market and inspire a degree of buoyancy for early trade within the market today against the prices set yesterday, as follows:

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

NOV 1499 – 18                                          DEC    122.90 + 0.45
JAN 1532 – 18                                           MAR   125.55 + 1.05
MAR 1562 – 17                                         MAY   127.60 + 0.90
MAY 1585 – 18                                          JUL    129.60 + 0.80
JUL 1607 – 18                                            SEP    131.30 + 0.70
SEP 1628 – 18                                           DEC    133.90 + 0.50
NOV 1648 – 18                                        MAR    136.45 + 0.30
JAN 1667 – 18                                         MAY    138.20 + 0.15
MAR 1685 – 18                                         JUL    139.95 + 0.05
MAY 1709 – 18                                        SEP     141.60 unch