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

Coffee Market Report

08 Jan 2016
The National Coffee Institute in Costa Rica have reported that the country’s coffee exports for the month of December were 10,909 bags or 20.51% lower than the same month last year, at a total of 42,286 bags. This dip in exports contributes to the countries cumulative coffee exports for the first three months of this new October 2015 to September 2016 coffee year to be 20,762 bags or 18.08% lower than the same period in the previous coffee year, at a total of 94,096 bags.

This dip in exports so far for Costa Rica within this new coffee year is however of little significance, as the forecasts so far and with the new crop harvest now in progress, is for a new crop that shall easily match the levels of the previous crop. Thus with the prospects for a new crop that shall exceed 1.4 million bags this year, one might expect steady export volumes over the rest of the present coffee year.

The New Year has been kind to the Brazil coffee producers so far, with reports of fair rains over the main South Eastern Brazil coffee districts, which are beneficial for the building up of ground water retention levels and the development of the new crop cherries. The forecasts are likewise indicating more rains to come for the second half of the month and it would seem that with assistance of the El Nino phenomenon which traditionally brings good rains to Southern Brazil, that there shall be no threat of drought for the prospects of this year’s potentially much larger new crop.

However while the new Arabica coffee Brazil arabica coffee crop shall be potentially a much larger crop, the earlier dry conditions within the northern districts of the eastern state of Espirito Santo that is now forecasted to get better rains later this month, has most certainly reduced the potential new conilon robusta coffee crop. Nevertheless and with this aside, most trade and industry forecasts are now indicating that the overall new Brazil crop shall well exceed 55 million bags, with many even talking more ambitious numbers that range around the 60 million bags mark. But one should perhaps and with the problems for the conilon crop in mind, it might be best to be cautious and remain closer to the former mid 50’s number, in terms of medium to longer term calculations for global coffee supply.

The prevailing El Nino phenomenon has most certainly had some impact with drier conditions for parts of the Pacific Rim countries such as Colombia, Peru and Indonesia and further afield in India and parts of East Africa, which has to have some impact upon longer term coffee production potential. But the interesting factor with the El Nino due to fade away during the second quarter of this year, is that the authorities in Indonesia are already speculating that the El Nino shall be followed in the last quarter of this year, by the La Nina phenomenon. This La Nina to bring with it equally damaging excessive rains, which could delay the maturing new crops for the next October 2016 to September 2017 coffee year.

The March on March contracts arbitrage between the markets narrowed yesterday, to register this at 51.36 usc/Lb., while this equates to a 43.36% 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 733 bags yesterday; to register these stocks at 1,707,072 bags. There was meanwhile a larger in volume 6,144 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 32,472 bags.

The Certified Robusta coffee stocks held against the London market were seen to decline by 11,833 bags on Monday 4th. January; to see these stocks registered at 3,262,833 bags.

The commodity markets were mixed but with many remaining on the back foot in trade yesterday, but with perhaps with less volatility noted within most markets and to see the overall macro commodity index taking a marginally softer track for the day. This has not been the case for the global equity markets and with China and it’s generally over valued shares to the fore, which have experienced the worst start to a new year, since records began in 1928. The Natural Gas, Sugar, Wheat, Gold, Silver and Platinum markets had a day of buoyancy and the Cocoa and Soybean markets were near to steady, while the Oil, Coffee, Cotton, Copper, Orange Juice and Corn markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.26% lower to see this Index registered at 372.29. The day starts with the U.S. Dollar steady in early trade and trading at 1.462 to Sterling and 1.088 to the Euro, while North Sea Oil is showing buoyancy in early trade and is selling at 33.25 per barrel.

The London and New York markets started the day yesterday with early losses and both markets maintained their softer track into the rising volume afternoon trade, with the losses extended for both of the markets. The London market did however make a partial recovery to limit its losses during the afternoon before taking a sideways and marginally softer track for the rest of the day, while the New York market maintained an erratic sideways softer track for the day. The London market continued to end the day on a softer note and with 44.8% of the earlier losses of the day intact, while the New York market ended the day on a soft note and with 73.2% of the earlier losses of the day intact. Once again this close does little to inspire, but one might think that there might be a degree of caution and that the markets are due for a hesitantly steady start for early trade today against the prices set yesterday, as follows:

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

JAN 1434 – 17                                         MAR 118.45 – 1.50
MAR 1479 – 13                                       MAY 120.60 – 1.50
MAY 1509 – 13                                         JUL 122.60 – 1.50
JUL 1538 – 11                                           SEP 124.35 – 1.45
SEP 1563 – 9                                            DEC 126.65 – 1.50
NOV 1585 – 8                                         MAR 129.00 – 1.40
JAN 1605 – 5                                          MAY 130.40 – 1.50
MAR 1624 – 5                                           JUL 131.75 – 1.50
MAY 1646 – 5                                           SEP 132.90 – 1.45
JUL 1671 – 5                                             DEC 134.40 – 1.35