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

Coffee Market Report

14 Jan 2016

14th. January, 2016.
The new October 2015 to September 2016 Vietnam robusta coffee crop is in harvest, even as there are high record carryover stocks of the past crop robusta coffees in hand. This robusta coffee is mostly still in the stores of internal traders and farmers and thus, seemingly a matter of time before the incoming stocks of new crop coffees will start to build up and require storage space. Despite the relatively unattractive value of the prevailing London market for these generally well financed farmers, the need for space in combination with a somewhat traditional liquidation of a percentage of coffee stocks for cash to finance the upcoming Tet New Year Holiday celebrations, may provide a degree of inspiration to the internal market to become more aggressive sellers to consumer market industries that are presently, following a more longer term buying policy.

The Government Statistics Institute in Brazil IBGE has published their Brazil 2016 new crop assessment yesterday, to factor a new crop of 49.73 million bags, or 12.5% increase in potential this year, when compared against their past 2015 crop forecast. This new crop they say, is estimated to be made up by 38.33 million bags of arabica coffees and 11.40 million bags of conilon robusta coffees. In relation to independent trade and industry estimates, theirs is a traditionally conservative estimate which is at the lower end of the prevailing estimates which range widely from 47 million bags to 62 million bags for the June 2016 to July 2017 Brazil coffee crop that is still relatively early in development phase.

Within the consumer markets meanwhile and to bring some heart to the daily roll of seemingly dismal news, Starbucks have publicly voiced their latest ambitions to continue to expand within China, aiming to open a further 500 stores in China this year, with extended future plans for job creation and store openings in China every year through to 2019. This, in the face of the seemingly gloomy financial outlook toward tapering growth of the retail and consumer sector within China, will have no impact upon the markets but is nevertheless an upbeat indication of the company’s continued confidence in this market. Starbucks currently has 2000 coffee shops in China, which is their second largest market outside of the U.S.A.

The March on March contracts arbitrage between the markets widened marginally yesterday, to register this at 48.71 usc/Lb., while this equates to a 42.43% 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 18,727 bags yesterday; to register these stocks at 1,683,412 bags. There was an increase of 4,106 bags to the number of bags pending grading for this exchange; to register these pending grading stocks at 32,660 bags.

It was a more positive day in the commodity markets yesterday, as better than expected export data from China provided a boost to sentiment and mildly negative economic indicators released by the U.S.A. later in the day, lead to a softer US Dollar on the day. The Oil markets registered mostly softer on the close after some early in the session recovery, whereas it was an improved day for Sugar, Cocoa, Coffee, Cotton, Corn, Wheat and Soybean markets, likewise a positive day for Gold, Silver, Platinum and Palludium. The Orange Juice and Copper markets, settled lower on the day. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.395% higher to see this Index registered at 363.91. The day starts with the U.S. Dollar steady in early trade and trading at 1.44 to Sterling and 1.087 to the Euro, while North Sea Oil is softer in early trade and is selling at 28.71 per barrel.

The London and New York markets started the day with some buoyancy yesterday, to see both markets taking a positive track early on in the session, but with the London market coming under some pressure and dipping back briefly, into negative territory. The generally more positive stance within the commodities sector aided by a softer US Dollar leant a degree of positive support to the New York market. This followed closely by London albeit in relatively thin volume and both markets maintained a positive stance for the rest of the day. The Brazil Real meanwhile, on the back of the softer US Dollar yesterday, posted an improvement against the Greenback to a low of 3.9692, before slipping back to over 4.01 toward the close of the day.

Although a more buoyant session yesterday, both markets registered modest volumes of trade on the day, and both markets held within a narrow range for the session. New York slipped back from the highs of the later day toward the end and a close in this market, closer to the middle of the day range. It was a muted session in London overall, with a close near to the day high. The positive close for the London market and the relatively steady close for New York could bring about a relatively steady start for early trade today, against the prices set yesterday, as follows:

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

JAN   1415 + 9                             MAR 114.80 + 0.45
MAR 1457 + 9                             MAY 117.10 + 0.40
MAY 1488 + 11                           JUL 119.20 + 0.45
JUL    1515 + 8                             SEP 121.10 + 0.45
SEP    1537 + 4                             DEC 123.55 + 0.30
NOV  1559 + 3                             MAR 126.00 + 0.25
JAN   1578 + 1                             MAY 127.50 + 0.35
MAR 1597 + 1                             JUL 128.85 + 0.45
MAY 1619 + 1                             SEP 130.10 + 0.55
JUL   1644 + 1                             DEC 131.80 + 0.65