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

Coffee Market Report

30 Nov 2015
The Uganda Coffee Development Authority have reported that the countries coffee exports for the month of October were 5,584 bags or 2.43% lower than the same month last year, at a total of 223,858 bags. These exports were in terms of value US$ 7,724,265.00 or 25.2% lower than the same month last year, at a total of US$ 22,933,326.

This dip in value for the coffee exports for the month of October in terms of U.S. dollars is however not as harsh as its face value, as in the meantime the Uganda shilling has suffered from a significant devaluation against the U.S. dollar and in terms of local currency the October 2015 exports were only approximately 0.5% lower than the value of the exports in October 2014. There is however a rising inflation rate in Uganda that is now in excess of 8% per annum, which does mean that farm gate income for the Uganda coffee farmers is starting to decrease, which could start having a negative impact upon sentiment and in farm investment upon the farmers. Unless there is soon to be some improvement in the reference prices of the international coffee prices, which is so far not looking to be a factor for the short term.

The Brazil government is due to start of its regular auctions of state coffee retention stocks on Tuesday, with an offering of 100,263 bags of aged arabica coffee stocks. These coffees by nature of their vintage, being destined towards the lower quality end of the countries domestic coffee market. With the target being to dispose of between 300,000 and 400,000 bags of the approximately 1.6 million bags of these government stocks with regular auctions, by the end of the year.

The Vietnam government General Statistics Office has reported that the country has registered a 3.78 billion U.S. dollars trade deficit for the first eleven months of this year, in comparison to a 2.88 billion U.S. dollars trade surplus over the same period in the previous year. But if this deficit might inspire the authorities to put any pressure upon their banks to tighten up credit for the farmers and internal traders who have been holding back significant stocks of past crop coffees from the export market is questionable, as to swiftly liquidate coffee stocks would impact negatively upon the value of these coffees and more importantly, upon the value of the new crop coffees that are now coming in.

Thus on the longer term the liquidation of coffee stocks, would not be likely to assist to counter the prevailing month by month national trade deficit. Particularly so as coffee in reality has only accounted for approximately 1.6% of the value of the country’s exports for the first eleven months of the year, which would indicate that the liquidation of stocks would have little impact rectifying the prevailing trade deficit.

The March on March contracts arbitrage between the markets narrowed on Friday, to register this at 53.61 usc/Lb., while this equates to a 43.37% 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 increase by 2,524 bags on Friday; to register these stocks at 1,843,854 bags. There was meanwhile a larger in volume 4,450 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 3,405 bags.

The Certified Robusta coffee stocks held against the London exchange were seen to decrease by 1,333 bags on Thursday 26th. November; to see these stocks registered at 3,346,000 bags on the day.

The commodity markets were mixed in trade on Friday and with many players away from the desk within the U.S.A. market following Thursday’s Thanksgiving holiday and the consumption of approximately 46 million turkeys; it was a day of lacklustre trade. The U.S. dollar did however show some muscle for the day, which impacted negatively within many markets and upon the fortunes of the overall macro commodity index. The Sugar, Cocoa, Cotton and Copper markets had a day of buoyancy, while the Oil, Natural Gas, Coffee, Orange Juice, Wheat, Corn, Soybean, Gold, Silver and Platinum markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.89% lower to see this Index registered at 380.93. The day starts with the U.S. Dollar showing buoyancy in early trade and trading at 1.503 to Sterling and 1.058 to the Euro, while North Sea Oil is steady in early trade and is selling at 42.95 per barrel.

The London market started the day on Friday on a steady note, while the New York market returned from the holidays with modest early losses to start the day. Trade was however thin and lacklustre and while the New York market started drifting lower into the afternoon trade, the London market likewise faltered and drifted back to below par. From there on the trade was very erratic as is the nature of thin trade and with few players either side of the market and with the New York market pipping back to par and the London market having short spells within positive territory, but with the strong U.S. dollar in play the recoveries were unsustainable and the markets took a negative track to the close. The London market ended the day on a modestly negative note and with 57.1% of the earlier losses of the day intact, while the New York market ended the day on a soft note and with 78% of the earlier losses of the day intact. This overall soft and lacklustre close and with the U.S. dollar showing some early muscle is unlikely to inspire much better than a near to steady start for early trade today against the prices set on Friday, as follows:

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

NOV 1481 – 4                                           DEC     121.00 – 1.90
JAN 1514 – 4                                            MAR    123.60 – 1.95
MAR 1543 – 6                                          MAY    125.75 – 1.85
MAY 1567 – 6                                            JUL    127.80 – 1.80
JUL 1590 – 5                                              SEP    129.55 – 1.75
SEP 1610 – 5                                             DEC    132.15 – 1.75
NOV 1630 – 5                                          MAR    134.70 – 1.75
JAN 1649 – 5                                           MAY    136.55 – 1.65
MAR 1667 – 5                                           JUL    138.35 – 1.60
MAY 1691 – 5                                           SEP    140.05 – 1.65