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


I. & M. Smith (Pty) Ltd.

Coffee Market Report

20 Jan 2016
The National Coffee Association of Guatemala have reported that the countries coffee exports for the month of December were 34,684 bags or 37.22% higher than the same month in the previous year, at a total of 127,875 bags. This figure contributes to the countries cumulative coffee exports for the first three months of this new October 2015 to September 2016 coffee year to being 38,606 bags or 19.04% higher than the same period in the previous coffee year, at a total of 241,392 bags.

It is still early days for the new crop in Guatemala, but the positive start to this coffee years export performance does seemingly indicate that with the new crop harvest in progress, that the forecasts for and approximately 7% larger new crop might have some reality. While in terms of the higher grown coffees from Guatemala having a dedicated brand name support from mostly North American and Japanese roasters, the exports are attracting good positive differentials and are thus, allowing for exporters and ultimately the farmers, to counter the negative influences of the prevailing soft New York market.

The Coffee Export Association in Brazil has reported that with coffee exports for the month of December in hand that the countries green coffee exports for 2015 was 1.18% higher than the previous year, at a total of 33.33 million bags. While with the addition of the value added exports of soluble and roast coffee exports calculated in terms of their green coffee equivalent, the total coffee exports in 2015 were an impressive 36.89 million bags.

The same report does anticipate that with stocks from the previous harvests now declining and following the modest deficit 2015 crop that export volumes shall most probably start to decline during the second quarter of this year, but should the forecasted new crop this year be true and bring forth a relatively large crop, that by the end of the year the 2016 coffee exports are likely to match the 2015 figure. This would however in terms of the Brazil domestic consumption at 20 million bags and forecasted to increase to 21 million bags per annum an impressive target, as it would require a new crop of at least 58 million bags to even break even and this without the rebuilding of the very necessary reserve stocks.

One might rather suggest that with a smaller conilon robusta coffee crop forecasted for this year, that the volumes of conilon exports shall dip during 2016 and that this might already reduce overall exports by approximately 2 million to perhaps even 3 million bags. However even if this is the case and arabica coffee exports remain steady, it would still dictate the necessity for a new crop of approximately 55 million bags to break even for the year and with stocks by the time of the new crop due to be much depleted and the necessity to rebuild stocks likely to slow selling aggression, the possibility that the negative impact of Brazil selling over the terminal markets might be reduced and to assist for some buoyancy to come into play by the second quarter of this year.

A Bloomberg survey of respected traders and Analysts has concluded that following a coffee production in 2015 of approximately 11.67 million bags of coffee that the dry weather which has come with the prevailing El Nino phenomenon, shall result in a sharp dip in production for 2016. In this respect the average forecast within the survey is for a 2016 coffee harvest of approximately 9.3 million bags, with the decline of approximately 2.37 million bags being related to mostly robusta coffees.

This news is not new though but just a confirmation of earlier forecasts, while with the dip in Indonesian robusta coffee supply being more than adequately covered by the carry over robusta coffee stocks in Vietnam that are double the volume of the potential decline in Indonesia, there are no industry concerns over medium to longer term robusta coffee supply. Especially so as aside from the stocks in Vietnam, the new and recently completed Vietnam crop is estimated to have brought forth approximately 1.5 million more bags of robusta coffees, than their previous crop.

One might however note that with the probability of Vietnam stocks needing to cover for lower volumes of Indonesian robusta coffee supply and with the further probability for lower conilon robusta coffee export volumes this year that perhaps Vietnam is not actually so over stocked with robusta coffees, for the longer term. Thus with the apparent ability for Vietnams farmers and internal traders to raise finance for the carry of stocks, that Vietnam can continue with an orderly price resistant internal market selling policy through the year.

The March on March contracts arbitrage between the markets broadened yesterday, to register this at 51.60 usc/Lb., while this equates to a 44.62% 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 8,305 bags yesterday; to register these stocks at 1,678,760 bags. There was meanwhile a smaller in volume 169 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 26,291 bags.

The commodity markets post the Martin Luther King long weekend holiday in the U.S.A., were back to work yesterday and with mixed fortunes, but with the overall macro commodity index showing some buoyancy for the day. The Oil, Natural Gas, Cocoa, New York arabica Coffee, Cotton, Copper, Wheat, Corn, Soybean and Silver markets had a day of buoyancy, while the Sugar, London robusta Coffee, Orange Juice and Gold markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.11% higher; to this Index registered at 359.41. The day starts with the U.S. Dollar near to steady in early trade and trading at 1.415 to Sterling and 1.095 to the Euro, while North Sea Oil is tending softer in in early trade and is selling at 26.60 per barrel.

The London market started the day yesterday on a near to steady note, while the New York market started the day with a degree of buoyancy. The positive nature of the New York market seemingly had some influence upon the London market which recovered to par and with both markets maintaining this stance into the afternoon trade, but as the afternoon progressed and with the New York market shedding some of its gains, the London market once more slipped to marginally below par. The New York market briefly suffered from some negative pressure but soon recovered to take a steady track for the rest of the day, while the London market took a sideways negative track for the rest of the day. The London market continued to end the day on a soft note and with 80% of the losses of the day intact, while the New York market ended the day on a positive note and with 44.1% of the gains of the day intact. This mixed close provides little guidance, but one might expect to see a cautious steady start for early trade today against the prices set yesterday, as follows:


JAN 1364 – 8                                              MAR 115.65 + 0.75
MAR 1412 – 8                                            MAY 117.90 + 0.75
MAY 1443 – 8                                               JUL 119.95 + 0.70
JUL 1471 – 8                                                 SEP 121.85 + 0.75
SEP 1496 – 8                                                DEC 124.30 + 0.75
NOV 1518 – 7                                             MAR 126.80 + 0.85
JAN 1540 – 7                                              MAY 128.15 + 0.80
MAR 1561 – 7                                               JUL 129.30 + 0.65
MAY 1583 – 7                                               SEP 130.45 + 0.60
JUL 1608 – 7                                                DEC 131.95 + 0.45