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

Coffee Market Report

09 Dec 2015
The new Vietnam robusta coffee crop is heading towards peak harvest, but with the prevailing soft reference prices of the London market, the sales of new crop coffees to the mills and exporters in the country remain slow. Thus aside from the significantly high record carryover stocks of past crop robusta coffees being held by internal traders and farmers, there are now large stocks of new crop coffees starting to build up within the internal market, which might soon inspire farmers and internal traders to become more aggressive sellers.

But it is perhaps only the pressures to raise finance ahead of the Tet New Year holiday which shall close down commercial activity in Vietnam for the second week of February to kick start the new year of the monkey, which shall inspire more aggressive selling activity during the coming month. In this respect one has in mind the fact that the lower profits that are now coming to the farmers from their present sales against the price dictates of the London market, shall force farmers to increase volumes of sales to raise the required funds to finance their most important holiday week of the year.

It is apparent though that many farmers and internal traders are pinning hopes on the prospects for the El Nino phenomenon inspired lower Brazil conilon robusta and Indonesia robusta crops in the coming year, which combined could lower 2016 world robusta coffee supply from these two producers by 4 to 5 million bags. Thus creating tightening supply from their competitors, to bring with it added value for the Vietnam robusta coffee stocks on the longer term. A factor that assists to inspire internal market price resistance within Vietnam and might also bring with it some reason to believe in the prospects for rising value for the London robusta coffee market, on the longer term.

The coffee world continues to see consolidation with the news that the investment arm of the Reimann family JAB Holding Company which is behind the recent amalgamation of the Mondelez coffee holdings in Europe and D. E. Master blenders to form the new Jacobs Douwe Egberts Company, is joined by other investors to buy out the Keurig Green Mountain Company in North America. This purchase at a value of 13.9 billion U.S. dollars, brings to the group North America’s leading single serve coffee and tea supplier and one might think that in time, shall see the Keurig brand of single serve machines and capsules take a more global stance and provide more competition for the Nestle Nespresso and Dolce Gusto brands of machines and capsules.

The March on March contracts arbitrage between the markets narrowed yesterday, to register this at 54.58 usc/Lb., while this equates to a 43.59% 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 2,590 bags yesterday; to register these stocks at 1,820,113 bags. There was meanwhile no change to the number of bags pending grading for this exchange; to register these pending grading stocks at 0 bags.

The commodity markets remained under pressure yesterday with the combination of declining Chinese growth prospects and demand and the muscle of the U.S. dollar, continuing to provide negative pressure within many markets and the Oil markets coming under the added pressure from the news that the OPEC countries shall not take any steps to reduce oil supply. Thus the macro commodity index continued on its present downside track, which added to negative sentiment within many markets. The Orange Juice, Corn and Gold markets had a day of buoyancy and the Cotton and Copper markets were steady, while the Oil, Natural Gas, Sugar, Cocoa, Coffee, Wheat, Soybean, 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 0.69% lower to see this Index registered at 378.00. The day starts with the U.S. Dollar steady in early trade and trading at 1.501 to Sterling and 1.091 to the Euro, while North Sea Oil is showing a degree of buoyancy in early trade and is selling at 39.65 per barrel.

The London and New York markets started the day yesterday on a softer note and taking a soft track into the afternoon trade, but with the New York market taking the lead as the afternoon progressed to start on a hesitant upside track back towards par and even taking a later in the afternoon pip back up into positive territory, while the London market recovered much of its earlier losses. The New York market did not however manage to attract sufficient support to remain above par and slipped back to join the London market in negative territory, through to the end of the day’s trade. The London market ended the day on a modestly softer note but having recovered 78.3% of the earlier losses of the day by the close, while the New York market ended the day on a soft note but likewise having recovered 83.2% of the earlier losses of the day by the close. This close does little to inspire confidence, but one might foresee that the ability of both markets to bounce back from their lows in yesterdays trade might cause some players to be a bit cautious and to therefore encourage a 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 1531 – 4                                                  DEC     122.25 – 0.40
MAR 1557 – 5                                                MAR    125.20 – 0.85
MAY 1584 – 7                                                MAY    127.35 – 0.80
JUL 1609 – 7                                                    JUL     129.30 – 0.85
SEP 1630 – 7                                                    SEP     131.20 – 0.85
NOV 1649 – 7                                                 DEC     133.85 – 0.90
JAN 1665 – 7                                                  MAR    136.45 – 1.00
MAR 1683 – 7                                                MAY    138.25 – 1.05
MAY 1705 – 7                                                  JUL    139.85 – 1.15
JUL 1737 – 7                                                    SEP     141.20 – 1.25