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

Coffee Market Report

08 Dec 2015
The latest Commitment of Traders report from the New York arabica coffee market has seen the shorter term in nature Managed Money fund sector of this market increase their net short sold position within the market by 0.06% over the week of trade leading up to Tuesday 1st. December; to register a net short sold position of 19,576 Lots. Meanwhile the longer term in nature Index Fund sector of this market increased their net long position within the market by 2.49%, to register a net long position of 27,130 Lots on the day.

Over the same week the Non Commercial Speculative sector of this market decreased their net short sold position within the market by 0.5%, to register a net short position of 26,166 Lots. This net short sold position which is the equivalent of 7,417,945 bags has most likely been since decreased, following the mixed but overall more positive trade that has since followed and likewise, that of the net short sold position of the Managed Money Funds.

The latest Commitment of Traders report from the London robusta coffee market has seen the Speculative sector of this market increase their net short sold position within the market by 21.79% over the week of trade leading up to Tuesday 1st. December; to register a net short sold position of 23,041 Lots on the day. This net short sold position that is the equivalent of 3,840,167 bags has most likely been marginally decreased over the period of mixed but overall more positive trade, which has since followed.

The Coffee Federation in Colombia have reported that the countries coffee production for the month of November was 207,000 bags or 18.57% higher than the same month last year, at a total of 1,322,000 bags. This improved performance has contributed to the countries cumulative production for the first two months of this new October 2015 to September 2016 coffee year to being 474,000 bags or 21.39% higher than the same period in the previous coffee year, at a total of 2,690,000 bags.

In terms of exports the Coffee Federation in Colombia have reported that the countries coffee exports for the month of November were 67,000 bags or 6.56% higher than the same month last year, at a total of 1,089,000 bags. This improved performance has contributed to the countries cumulative exports for the first two months of this new October 2015 to September 2016 coffee year to being 283,000 bags or 14.24% higher than the same period in the previous coffee year, at a total of 2,271,000 bags.

Thus so far for this calendar year the Colombian coffee production has totalled 12,721,000 bags and with the perception that December production shall be somewhat similar to the November production, the country is on target to seen the year’s production to get close to 14 million bags. However with the drier weather that is being experienced with the prevailing El Nino phenomenon that is presently in play and its negative effect upon the flowering for the next mid-year Mitaca crop, one might suggest that Colombian coffee production for the coming year might struggle to match this year’s impressive production level and it might perhaps be safer to talk in terms of approximately 13 million bags for 2016. But nevertheless a crop that combined with increased fine washed arabica coffee supply due from Mexico, Central America and Peru, which shall be sufficient to satisfy consumer market demand for these quality coffees, for the medium to longer term.

The traditionally conservative in nature National Coffee Council in Brazil have stepped to the fore yesterday with their forecast that with the good rains in south east Brazil which are being influenced by the prevailing El Nino phenomenon that next year’s new crop arabica coffee production shall rise to 37 million bags, but that due to the dry weather conditions to the north and more particularly within the state of Espirito Santo, that conilon robusta production would only be a modest 11 million bags. Therefore forecasting a new 2016 Brazil crop of only 48 million bags, which would be yet another in terms of domestic and export demand, deficit crop. This forecast that counters the many recent trade and industry forecast of a new 2016 Brazil crop of close to 60 million bags has to be seen to be its usual conservative report and perhaps up to 15% below reality and this was evident, in terms of the lack of positive reaction from the markets in late trade yesterday.

The March on March contracts arbitrage between the markets narrowed yesterday, to register this at 55.20 usc/Lb., while this equates to a 43.79% 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 800 bags yesterday; to register these stocks at 1,820,113 bags. There was meanwhile a larger in volume 2,195 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 0 bags.

There was no report on the Certified Robusta coffee stocks held against the London exchange which were seen to decrease by 333 bags on Thursday 3rd. December; to see these stocks registered at 3,334,333 bags on the day.

The commodity markets had a softer day yesterday, but with the overall macro commodity index coming under further pressure from the demise of the Oil markets, which took the index on a sharply softer track for the day. The Cocoa, Orange Juice and Wheat markets nevertheless had a day of buoyancy and the London robusta Coffee market was steady, while the Oil, Natural Gas, Sugar, New York arabica Coffee, Cotton, Copper, 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 1.55% lower to see this Index registered at 380.66. The day starts with the U.S. Dollar steady in early trade and trading at 1.504 to Sterling and 1.085 to the Euro, while North Sea Oil is tending softer in early trade and is selling at 39.35 per barrel.

The London and New York markets started the day yesterday on a near to steady note and took a steady sideways track into the afternoon trade, with both markets attracting support and moving into positive territory as the afternoon progressed. However with the negative nature of the macro commodity index having some influence this was not sustained within the New York market which fell back into negative territory and followed briefly by the London market, to see the New York market take a softer track for the rest of the day, while the London market recovered to close to par. The London market ended the day on a near to steady note and having recovered 85.7% of its earlier losses of the day, while the New York market ended the day on a soft note and with 48.6% of the earlier losses of the day intact. This close does little to inspire but perhaps with some degree of buoyancy seen within the London market and the ability of the New York market to bounce back from the relatively modest lows, there might be reason to foresee a cautious 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 1535 – 1                                               DEC    122.65 – 1.35
MAR 1562 – 2                                             MAR   126.05 – 0.90
MAY 1591 – 1                                            MAY   128.15 – 0.95
JUL 1616 + 1                                                JUL    130.15 – 1.00
SEP 1637 + 2                                                SEP    132.05 – 0.90
NOV 1656 + 2                                              DEC   134.75 – 0.90
JAN 1672 + 2                                               MAR   137.45 – 0.90
MAR 1690 + 2                                             MAY   139.30 – 0.90
MAY 1712 + 2                                               JUL   141.00 – 0.90
JUL 1744 unch                                               SEP   142.45 – 0.85