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


I. & M. Smith (Pty) Ltd.

Coffee Market Report

11 Dec 2015
The rains continue to fall over the main arabica coffee districts in south east Brazil, which assists to dampen bullish spirits within the coffee markets, as they underpin the many forecasts for a significant rise in the volume of the new 2016 Brazil arabica coffee crop. While there still remain problems for the state of Espirito Santo to the north, where light rains so far over the past three months are causing concerns over the next Brazil conilon robusta crop.

Meanwhile the report that the large Brazilian coffee cooperative Cooxupe have forecast that their members shall see a 20% increase in coffee production for their next 2016 harvest, has further supported the forecasts for an overall larger new Brazil crop in 2016. But one might comment in terms of the problems foreseen for the conilon robusta coffee farmers, that such a factor might rather support forecasts for a new
Brazil crop of between 55 million to 56 million bags, rather than the figures of closer to 60 million bags that have recently been voiced.

Therefore while there is seemingly no question that Brazil shall bring to the fore a surplus crop next year, it is more likely that it shall be a much needed small surplus crop, rather than a large surplus. While with the prospects for the Brazil coffee stocks to be much depleted by the start of the new crop as stocks are required to fill in for steady consumer coffee supply following two years of deficit crops, a surplus crop shall be required to rebuild the stocks. Thus making the prospects for a larger new Brazil crop not such a negative factor for the markets, which are presently under pressure from mostly the negative influences of the commodity markets in general, than from any perspective of surplus world coffee supply.

There would appear to be increasing volumes of coffee coming to the fore within the internal market in Vietnam at present, with some pressure starting to build upon the farmers and internal traders with the inflow of new crop robusta coffees coming in over and above the significant carry over past crop stocks that are at hand. This might indicate that during the coming month of January and ahead of the Tet New Year celebrations during the second week of February, that there might be some more aggressive selling due out of Vietnam.

Meanwhile though and with varying degrees of producer price resistance in play within both the full range of arabica and robusta producing countries, there is little in the way of coffee supply at tenderable parity coming to the markets. Thus seeing the volumes of certified coffee stocks of both the New York and London market steadily drifting lower, but while the decline in the volumes of the certified stocks would most usually be seen to be a bullish indicator for the markets, the reality than the declines are more related to price resistance than being related to short to medium term global coffee supply, is negating the influences of the declining certified stocks upon market sentiment.

The March on March contracts arbitrage between the markets narrowed yesterday, to register this at 56.04 usc/Lb., while this equates to a 44.35% 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 14,525 bags yesterday; to register these stocks at 1,802,998 bags. There was meanwhile a smaller in volume 12,000 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 12,000 bags.

The Certified Robusta coffee stocks held against the London market were seen to decline by 6,833 bags on Wednesday 9th. December; to see these stocks registered at 3,322,000 bags.

The commodity markets were mixed in trade yesterday but were generally lacklustre in nature, with the overall macro commodity index taking a modestly negative track for the day. The Copper, Wheat, Corn and Soybean markets had a day of buoyancy, while the Oil, Natural Gas, Sugar, Cocoa, Coffee, Cotton, Orange Juice, Gold, Silver and Platinum markets tended softer for the day. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.52% lower to see this Index registered at 378.82. The day starts with the U.S. Dollar showing a degree of buoyancy in early trade and trading at 1.513 to Sterling and 1.094 to the Euro, while North Sea Oil is near to steady in early trade and is selling at 38.50 per barrel.

The London and New York markets had an erratic mostly sideways day of trade yesterday, with the New York market experiencing particularly thin and lacklustre trade through the day, while the London market was relatively more active in terms of volume. The London market continued to end the day on a modestly negative note and with 71.4% of the losses of the day intact, while the New York market ended the day on a likewise modestly negative note but having recovered 76.3% of the earlier losses of the day by the close. The ability of the New York market to post a reasonable recovery and to limit its losses might be seen to be modestly supportive for sentiment and one might expect to see a cautiously steady start due for early trade today against the prices set yesterday, as follows:


JAN 1522 – 4                                                 DEC    122.65 – 1.20
MAR 1550 – 5                                               MAR   126.35 – 0.45
MAY 1579 – 3                                               MAY   128.40 – 0.50
JUL 1603 – 3                                                   JUL    130.35 – 0.50
SEP 1624 – 2                                                   SEP    132.15 – 0.55
NOV 1644 – 2                                                DEC    134.60 – 0.65
JAN 1662 – 2                                                 MAR    137.00 – 0.75
MAR 1680 – 2                                               MAY    138.65 – 0.85
MAY 1703 – 2                                                 JUL    140.25 – 0.90
JUL 1735 – 2                                                   SEP    141.65 – 0.95