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

Coffee Market Report

15 Jan 2021

The U.S. Governments National Weather Service’s Climate Prediction Centre have reviewed their forecast to maintain their projection that there is a 95% chance for the La Niña phenomenon to prevail through to March. La Niña being a weather phenomenon, which traditionally brings with it the potential for wet weather for the Pacific Rim countries and in terms of coffee, having an impact upon the climatic conditions within Colombia, Indonesia and Peru. It can also influence dry conditions for the arabica coffee districts in South Eastern Brazil, as well as East Africa coffee producing countries.

The weather across the Brazil coffee belt meanwhile, has registered a week of sporadic rains between the main growing regions of Minas Gerais and Espirito Santo, with weather forecasters foreseeing dry weather and warmer temperatures to come to the main coffee growing areas towards next week.

The analysts Safras & Mercado have reported that Brazil coffee farmers have already sold around 78% of the estimated total production of 69.50 million bags from this current July 2020 to June 2021 coffee crop. The pace of sales at this time across a 5-year average is reported to be around 74% and illustrating that current crop sales are marginally above that of the recorded five year average. This selling activity has been assisted to a degree by the weaker overall Brazil Real currency in relation to the US Dollar, boosting returns in local Brazil Real terms. The prevailing internal market has shown signs of price resistance over the last couple of weeks however, as many producers are seen to be holding back from further coffee sales, in tandem with the Brazil Real that has strengthened against the Greenback over the same time, ahead of the next biennial bearing lower Brazil arabica crop to come.

The March 2021 to March 2021 contract arbitrage between the London and New York markets widened yesterday: to register this at 66.93.83 usc/Lb. This equates to 52.56% price discount for the London Robusta coffee market.

The Certified washed Arabica coffee stocks held against the New York exchange were seen to increase by 12,423 bags yesterday, to register these stocks at 1,527,902 bags, with 94.4% of these certified stocks being held in Europe at a total of 1,443,626 bags and the remaining 5.6% being held in the USA at a total 84,276 bags. There was meanwhile a smaller in number 1,565 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 125,275 bags.

It was a firmer day overall on the commodity markets yesterday, to see the overall macro commodity index taking something of a positive sideways track for the day. The Sugar, Cocoa and Coffee markets ended the day on a positive note. The Reuters Equal Weight Continuous Commodity Index that is related to 17 markets is 0.8321% higher; to see this index registered 475.6446. The day starts with the U.S. Dollar, trading at 1.367 Sterling, at 1.214 the Euro and with the US Dollar buying 5.197 Real.

The New York and London markets started the day yesterday trading on a modest softer note, both markets continued this softer path for most of the morning session, oscillating around par before taking a softer track for the late morning session. As the afternoon progressed the markets hit a floor to limit the losses for the day and see both the New York and London markets bounce off the lows of the day and set on a firmer path for the afternoon trade. The New York market buoyed by some degree of buying support late in the day recovered all of the earlier losses and gained momentum to see the market settle near to the highs of the day on a firmer note, while the London market followed suit in a more sedate manner settling on par, unchanged for the day.

The London market ended the day unchanged from the settle of the previous day, while the New York ended the day on a positive note with 79.24% of the earlier gains of the day intact. This mixed but firmer close for the markets, with the New York market settling near to the highs of the day, might inspire some degree of confidence and one might think that the markets are due for a follow-through steady start to early trade today, against the prices set yesterday, as follows:

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

MAR 1332 Unch                                       MAR 127.35 + 2.10
MAY 1342 – 1                                          MAY 129.40 + 2.15
JUL 1355 – 2                                            JUL 131.25 + 2.10
SEP 1374 – 1                                            SEP 133.05 + 2.10
NOV 1393 – 1                                          DEC 135.05 + 2.05
JAN 1408 – 2                                           MAR 136.85 + 2.05
MAR 1424 – 2                                         MAY 137.80 + 2.05
MAY 1441 – 2                                         JUL 138.60 + 2.00