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


I. & M. Smith (Pty) Ltd.

Coffee Market Report

15 Jan 2016

15th January, 2016.

The International Coffee Organisation have reported their first estimate of coffee production in this new October 2015 to September 2016 coffee year, which they foresee to reach 143.4 million bags and a slight 1.4% increase on that of the previous coffee year, which was revised to a lower 141.4 million bags. The ICO use the official Brazil Agriculture Ministry’s CONAB crop supply agency estimate and their forecast of Brazil estimate of production within their forecast figures, and this estimate traditionally leaning toward the lower end of general trade and industry estimates, at a total 43.24 million bags. The increase in the overall production estimate for the year within the washed arabica sector is largely due to the increase in production to come from Colombia, which is provisionally forecast to reach 13.50 million bags, while the anticipated increase in overall robusta coffee production can be attributed to the larger crops from Indonesia that is nearing an end, as well as Vietnam and Uganda in this seasonal October 2015 to September 2016 coffee year. These production figures are mostly publicised by individual producer countries already and in this respect all very well absorbed by the markets, as such are not anticipated to have any effect on market sentiment.

The focus of attention within the arabica producer sector meanwhile, remains Brazil and the forecasts that are coming forth for the July 2016 to June 2017 coffee crop that is developing on the trees. After two years of drought affected lower coffee crops that have seen Brazil sustain supply with carryover stocks, this next crop to come is required to be a sizeable 55 million bags or above. The CNC National Coffee Council of Brazil have added their forecast to the current round of estimates for this coming crop, to say that unforeseen climatic anomalies aside this could be between 47 million bags and 49 million bags in 2016/17 coffee year.

This latest estimate is within the lower range of the string of estimates that are coming to the fore, with various private trade and industry forecasts and continued good weather conducive to bean development, maintaining a median estimate for the coming crop to be around 55 million bags. This prospectively larger crop to come is a positive factor for Brazil and for this largest producer and natural arabica supplier, to continue to support their annual consumer market export share of 32 million bags (in past years around 35 million bags), fuel their own domestic coffee consumer market that is estimated to be around 21 million bags over a twelve month period, as well as to replenish their traditionally held internal coffee stocks that have been depleted over the past two years of lower overall production. In this respect there is some validation to the continued focus of the speculative sector of the markets on the potential size of this next Brazil crop and for moment, the weather across the expansive Brazil coffee growing regions has been generally conducive for crop development.

The March on March contracts arbitrage between the markets widened yesterday, to register this at 50.67 usc/Lb., while this equates to a 43.72% 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 a nominal 494 bags yesterday; to register these stocks at 1,683,906 bags. There was a decrease of 1,227 bags to the number of bags pending grading for this exchange; to register these pending grading stocks at 31,433 bags.

It was a mixed day on the commodity markets yesterday, with a degree of conflicting signals swaying these markets as the leading in influence Oil markets, registered a firmer day, as did the US Dollar rise in tandem with sentiment on the US stock markets. The Oil markets settled mostly in positive territory, as was it a positive day for Sugar, Copper, Corn and Soybean markets, as was Palladium marginally up on the day. It was a softer day for Wheat, Orange Juice, Cocoa, Cotton, Gold, Silver and Platinum markets. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.448% lower to see this Index registered at 362.28. The day starts with the U.S. Dollar steady in early trade and trading at 1.44 to Sterling and 1.088 to the Euro, while North Sea Oil is softer in early trade and is selling at 28.58 per barrel.

It was a mixed day on the coffee markets yesterday, which started the day in both London and New York on a mildly softer note. The London market found a degree of underlying buyer support in the light volume morning session to see this market more into positive territory briefly, with origin sellers waiting above the market, quickly fell through unchanged and back into negative territory once more. Lacking fresh fundamental news to guide direction within the coffee markets, both markets maintained a narrow trading range below opening levels well into the afternoon session. There was a degree of resistance noted at the lows in New York however and this would appear to have boosted the confidence of speculative buyer activity as the session drew toward the close and perhaps, with sellers removed from the day to add to the upturn, New York posted a late in the day recovery back into positive territory where this market, settled near the highs of the day. The London Robusta market however, did not share the same fate and with the weight of sellers overhead, could not sustain occasional gains made during the session, to see this market close at the lows of the day. In all, the unsteady nature of the London Robusta close might see this market continue on a softer trend for the opening today, but with the later and more positive performance in New York toward the very end of the days trade, could see a follow through steady to mildly positive opening for the markets today, against the close yesterday which was after a mixed, mostly softer day and relatively average volume on both markets, as follows:


JAN       1391 – 24                      MAR  115.90 + 1.10
MAR     1438 – 19                      MAY  118.15 + 1.05
MAY     1467 – 21                      JUL    120.20 + 1.00
JUL        1493 – 22                     SEP    122.10 + 1.00
SEP        1515 – 22                     DEC   124.50 + 0.95
NOV      1536 – 23                     MAR  126.90 + 0.90
JAN       1554 – 24                     MAY  128.45 + 0.95
MAR      1573 – 24                     JUL   129.80 + 0.95
MAY     1595 – 24                     SEP   131.05 + 0.95
JUL       1620 – 24                      DEC 132.80 + 1.00