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


I. & M. Smith (Pty) Ltd.

Coffee Market Report

08 Sep 2021

The new coffee crops in Mexico and Central America are steadily ripening and weather has mostly been conducive for development, ahead for the new October 2021 to September 2022 coffee year, for these fine washed arabica coffee producers. There is a steady supply of new crop Peruvian coffees and Colombian Mitica arabica coffee flowing from the interior to the ports, however the largest hindrance to these coffees reaching consumer markets, remains the prevailing logistical bottlenecks, lack of equipment, shipping and space constraints creating perpetual delays. The shipping lane congestion has developed over the course of lockdowns in various countries, at various stages of the Covid19 related pandemic, this related to the altered routes of vessels, early stages of restrictions at ports for vessel entry due to Covid19 infections and quarantine requirements, which has throughout this time, escalated by the global economic chokehold created through main arterial shipping routes from producer nations to consumer nations, and container scarcity, rapidly increasing freight rates, competition for freight space for commodities and finished goods alike, continues to wreak havoc at ports.

The inflationary costs, meanwhile, of costs of transport, financing, storage, warehouses, holding inventories, which are not meeting sailing commitments, as well as the compounding shipment demands that are not being met with equipment and vessel space, is not showing any signs of subsiding within the near term. There remains a lack of tangible short-term capacities on the part of the global freight industry, with new containers and equipment that some have indicated to be in the pipeline, perhaps ironically being held up by the same entangled global supply chain disruption. For the time being, there is no foreseeable alleviation to the international squeeze on global supply chains. Looking ahead, there is the prospects of heightened winter and traditional increases in demand for consumer goods to come, which could be another contributing factor ahead of the approaching traditional end year festive season, that is in shipment transit time terms, already drawing near as the calendar year rapidly moves to December.

The markets are for the moment, devoid of fundamental news, the mainstream northern hemisphere physical coffee markets emerging from the summer holiday season, many consumer roasters remain side-lined, taking a wait-and-see approach, following the 14.29% movement in New York and the 19.23% upward movement in London futures markets, since the Brazil frost events in July.

This, while largest producer, Brazil, has completed both Conilon robusta and arabica harvests, and these coffees moving to the markets at a measured pace. Producers and industry alike, looking to the weather conditions within the Brazil coffee belt, to establish the new flowering for the next 2022/23 Brazil crop to come. In this respect, weather forecasters have mostly predicted that weather conditions are due to remain hot and dry during the next week over the main Arabica growing areas.

The November-to-December contract arbitrage between the London and New York markets widened yesterday to register this at 98.60 usc/Lb. This equates to 50.84% price discount for the London Robusta coffee market. This wide arbitrage will likely be viewed by price sensitive roasters as an attractive alternative discount for robusta against the comparatively higher value arabica coffee.

The Certified washed Arabica coffee stocks held against the New York exchange were seen to decrease by 1,131 bags yesterday, to register these stocks at 2,161,675 bags, with 94.21% of these certified stocks being held in Europe at a total of 2,036,541 bags and the remaining 5.79% being held in the USA at a total 125,134 bags. Of this, a total 1,153,485 bags, or 53.36% of the coffees registered and stored in consumer country certified warehouses of the exchange, Brazil washed arabica, and a further 39.13% of these certified coffees, originating from Honduras. There was meanwhile a larger in number 2,281 bags decrease to the number of bags pending grading to the exchange; to register these pending grading stocks at 1,797 bags.

The Certified Robusta coffee stocks held against the London exchange have been reported to decrease by 19,500 bags over the week of trade leading up to Monday 6th. September to see these stocks registered at 2,281,833 bags, on the day.

It was a softer day on the commodity markets yesterday, the US Dollar gained further ground against a basket of other currencies.  A stronger US Dollar is seen to be a bearish factor for many of the US Dollar based commodity markets when trading in other currencies. The Cocoa and Coffee markets ended the day on a positive note, while the Sugar, Corn, Soybean, Wheat, Gold, Silver, Platinum and Palladium markets ended the day on a softer note. The day starts with the U.S. Dollar trading at 1.378 Sterling, at 1.184 the Euro and with the US Dollar buying 5.169 Brazil Real.

The New York and London markets started the day yesterday trading on a modest firmer note. Both the New York and London markets continued to gain momentum during the early morning session before dropping back from the highs of the day during the late morning session. As the afternoon progressed the markets gained a degree of buying support which buoyed the markets in a firmer direction. The markets would soon hit a ceiling during the early afternoon session limiting the gains for the day, this would see the New York and London markets carry through a slim degree of confidence to settle near unchanged at the close.

The London market ended the day yesterday on a positive note and with 48.78% of the gains of the day intact, while the New York market ended the day yesterday on a likewise positive note and with 21.35% of the gains of the day intact. This firmer close might inspire some degree of follow through confidence, albeit that the markets dropped back from the earlier in the day highs to settle on a modest near to par firmer note, one might anticipate a hesitant steady start to early trade today, against the prices set yesterday, as follows:

LONDON ROBUSTA US$/MT                             NEW YORK USC/LB.

NOV 2102 + 20                                                        DEC 193.95 + 0.95
JAN 2069 + 28                                                         MAR 196.65 + 0.95
MAR 2012 + 19                                                       MAY 197.65 + 0.95
MAY 1993 + 14                                                       JUL 198.20 + 1.00
JUL 1984 + 8                                                           SEP 198.65 + 1.00
SEP 1982 + 7                                                           DEC 199.40 + 1.05
NOV 1986 + 6                                                         MAR 199.95 + 1.00
JAN 1996 + 6                                                          MAY 200.30 + 1.00