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

Coffee Market Report

12 Jan 2016
11th. January, 2016
The latest Commitment of Traders report from the New York arabica coffee market has seen the Non Commercial Speculative sector of this market decrease their net short sold position within the market by 34.98% during the week of trade leading up to Tuesday 5th. January; to register a net short sold position of 13,365 Lots. This net short sold position which is the equivalent of 3,788,918 bags has most likely been increased again, following the period of mixed but mostly negative trade, which has since followed.

The International Coffee Organisation have reported that global coffee exports for the first two months of the new October 2015 to September 2016 coffee year were 0.8% lower than the same period in the previous coffee year, at a total of 17.2 million bags. While they have reported that the global exports of robusta coffees for the twelve months from December 2014 to November 2015 were 7.3% lower than the previous twelve months, at 41.33 million bags. However the global arabica coffee exports for the same twelve month period was only 0.25% lower, at a total of 69.03 million bags.

One would however suggest and despite the smaller deficit crops from Brazil in 2014 and again in 2015, that this dip in exports for the twelve month period from December 2014 to November 2015 is more related to producer price resistance to the softening price dictates of the coffee terminal markets, than it is to any shortage of available coffees. This was particularly so in terms of Vietnam, which carried record stock over from the previous crop into the new October 2015 to January 2016 harvest.

One would note that in terms of the twelve months export volumes reported by the ICO that the market share of the robusta coffees has dipped to below the 40% mark, to register a market share of 37.45% of exports. But with the growth in world consumption being mostly related to the price sensitive new markets and to some degree to internal consumption growth for many of the producers, it would be expected that the demand for the lower priced robusta coffees shall steadily increase and once again with time, see the robusta market share rise above the 40% factor.

The March on March contracts arbitrage between the markets broadened on Friday, to register this at 51.64 usc/Lb., while this equates to a 43.39% 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 increase by 1,725 bags on Friday; to register these stocks at 1,708,064 bags. There was meanwhile a larger in volume 2,125 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 30,347 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 and with many remaining on the back foot in trade on Friday, 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. The Natural Gas, Cocoa, Coffee, Wheat and Corn markets had a day of buoyancy and the Soybean and Platinum markets were steady for the day, while the Oil, Sugar, Cotton, Copper, Orange Juice, Gold and Silver markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.14% lower to see this Index registered at 371.78. The day starts with the U.S. Dollar steady in early trade and trading at 1.452 to Sterling and 1.09 to the Euro, while North Sea Oil is softer in early trade and is selling at 31.60 per barrel.

The London and New York markets started the day yesterday with early buoyancy and maintained a steady positive track into the afternoon trade and while the New York market took a brief dip back into negative territory, the London market maintained a positive track for the day. The London market continued to end the day on a modestly positive note and with 46.2% of the earlier gains of the day intact, while the New York market ended the day on a likewise modestly positive note and with 37.9% of the earlier gains of the day intact. This close while on a steady note was in terms of the relatively modest retention of gains a relatively uncertain close and one might expect to see little better than a steady start for early trade today against the prices set on Friday, as follows:

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

JAN   1440 + 6                                MAR 119.00 + 0.55
MAR 1485 + 6                                MAY 121.20 + 0.60
MAY 1513 + 4                                JUL 123.15 + 0.55
JUL   1541 + 3                                SEP 124.90 + 0.55
SEP   1565 + 2                                DEC 127.25 + 0.60
NOV 1587 + 2                                MAR 129.70 + 0.70
JAN   1605 unch                             MAY 131.10 + 0.70
MAR 1624 unch                             JUL 132.45 + 0.70
MAY 1646 unch                             SEP 133.65 + 0.75
JUL   1671 unch                             DEC 135.20 + 0.80