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

Coffee Market Report

01 Dec 2020

The latest Commitment of Traders report from the New York arabica market has seen the Non-Commercial Speculative increase their net long position by 99.80% within the market over the week of trade leading up to Tuesday 24th. November: to register a new net long position of 15,230 Lots which is the equivalent of 4,317,638 bags.  This new net long position has most likely been further increased, following the period of mixed but overall firmer trade that has since followed. 

Most of the main coffee districts in Brazil have been in receipt of less than average rainfall during November, a month that is traditionally one of the higher average rainfalls in the seasonal year, according to the U.S Climate Prediction Centre, with most districts having received below average rainfall. Following on from the biennially bearing record crop during the July 2020 to June 2021 coffee year, many independent forecasters are foreseeing the new crop that is setting, to be lower though this is mainly due to biennially bearing lower factors, with official crop estimates soon to be coming to the fore, albeit slightly delayed this year due to the restrictions in place limiting the accessibility to perform crop survey reports, in these relatively early days ahead of this July 2021 to June 2022 coffee crop to come.

It is of course early days and with weather conditions globally becoming more unpredictable, the weather situation and the as yet, unforeseen possibility for adverse weather conditions to come to the Brazil coffee belt as the new crop develops, will continue to be a closely monitored factor for the markets. This year, with the additional complexities of what is forecast as a 95% prevalence for a La Niña weather phenomenon. This weather system traditionally brings with it the potential for wet weather for the Pacific Rim countries and in terms of coffee, could have an impact upon the climatic conditions within Colombia, Indonesia and Peru. This has historically increased the likelihood of drier than usual weather conditions for the arabica coffee districts in South Eastern Brazil, as well as in East African countries. The question of timing and proliferation of the forecasted La Niña that would historically become more pronounced in December through to February, and whether and to what extent this will manifest, will continue to be closely monitored by potentially affected countries in these months ahead.

The end of November traditionally marks the end of the Hurricane season meanwhile, and this has been a disastrous season in many aspects, this hurricane season saw a record number of 30 named storms develop. The most devastating of these, Hurricane Iota has left vast destruction in its wake after making its way through Nicaragua and Honduras. The latter country with thousands displaced in the valley city of San Pedro Sula, and in outer lying lower areas where flooding has caused mass displacement. This storm system following almost directly on the tail of Hurricane Eta. The heavy rains and high winds caused a humanitarian disaster, and infrastructural damage which has not been seen since the last hurricane of similar strength hit the region in 1998. Both Honduras and Nicaragua have implemented clean-up operations, and reconstruction of internal infrastructure, housing for displaced communities is gradually underway. It is perhaps a little too early to understand the full impact of the hurricane season this year for new coffee crops that have already begun harvest in the area, though the lower lying areas and harvests within these affected regions are likely to have suffered to some degree, though the extent is likely still too early to adequately assess. Some reports suggest meanwhile that the greatest challenge in coffee terms, is likely to be damage to internal infrastructure due to the excess rains and flooding, with projects underway to clean up and rebuild wherever possible.

The January 2021 to March 2021 contract arbitrage between the London and New York markets narrowed yesterday: to register this at 59.75 usc/Lb. This equates to 48.46% 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 826 bags yesterday, to register these stocks at 1,244,111 bags, with 93.5% of these certified stocks being held in Europe at a total of 1,163,691 bags and the remaining 6.5% being held in the USA at a total 80,420 bags. There was meanwhile a larger in number 5,760 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 99,985 bags.

It was a softer day overall on the commodity markets yesterday, to see the overall macro commodity index taking something of a soft sideways track for the day. The Sugar, Cocoa and Coffee markets ended the day on a negative note. The Reuters Equal Weight Continuous Commodity Index that is related to 17 markets is 0.5312% lower; to see this index registered 435.8767.  The day starts with the U.S. Dollar, trading at 1.337 Sterling, at 1.195 the Euro and with the US Dollar buying 5.332 Real. 

The New York and London markets started the day yesterday trading to the south of par. The markets continued this softer track for the remainder of the early morning session. As the afternoon progressed both markets recovered from the early in day the day lows, however this was short lived for the New York market as it soon attracted another wave of selling pressure only to hit a floor and bounce back limiting the losses for the day, while the London market followed suit in a more sedate manner.

The London market ended the day on a modest soft note with 83.33% of the earlier losses of the day intact. while the New York market ended the day on a likewise negative note with 25.71% of the earlier losses of the day intact. This softer close does little to inspire confidence, albeit with the New York market recovering most of the losses of the early morning session, one might think the markets are due for another hesitant steady start to early trade today, against the prices set yesterday, as follows:

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

JAN 1401 – 10                                               MAR   123.30 – 0.90
MAR   1405 – 8                                                       MAY   125.10 – 0.75
MAY   1414 – 10                                                    JUL     126.70 – 0.65
JUL   1428 – 11                                                      SEP     128.05 – 0.45
SEP    1444 – 11                                                       DEC   129.45 – 0.25
NOV   1459 – 12                                                     MAY   130.85 – 0.10
JAN   1474 – 12                                                      MAY   131.65 Unch
MAR   1489 – 12                                                      JUL     132.35 + 0.05