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

Coffee Market Report

26 Jan 2016
The latest Commitment of Traders report from the New York arabica coffee market has seen the shorter term in nature Managed Money fund sector of this market increase their net short sold position within the market by 17.3% over the week of trade leading up to Tuesday 19th. January; to register a net short sold position of 25,319 Lots. Meanwhile the longer term in nature Index Fund sector of this market increased their net long position within the market by 4.43%, to register a net long position of 28,431 Lots on the day.

Over the same week the Non Commercial Speculative sector of this market increased their net short sold position within the market by 15.88%, to register a net short position of 32,078 Lots. This net short sold position which is the equivalent of 9,093,971 bags has most likely been little changed, following the period of mixed but overall mostly sideways trade, which has since followed.

The latest Commitment of Traders report from the London robusta coffee market has seen the Speculative sector of this market increase their net short sold position within the market by 3.5% over the week of trade leading up to Tuesday 19th. January; to register a net short sold position of 29,625 Lots on the day. This net short sold position that is the equivalent of 4,937,500 bags has most likely been little changed, over the period of mixed but overall sideways trade, which has since followed.

One would think that the increasing net short sold positions of the speculative and managed money fund sectors of the market would be starting to illustrate the somewhat oversold nature of the markets and by nature, be supportive for some speculative short covering support. But it would seem for the present, that there is a lack of confidence and that alike the consumer market roasting industries for the present, that the punters in the coffee markets are unsure and prepared to take a wait and see stance towards the markets.

Fundamentally the range of reliable reports that are coming to the market in terms of medium to longer term coffee production and supply and while coming out of two years of deficit supply and declining world stocks, the world coffee supply would seem to be moving into a modest surplus for the second half of this year. This is however with global coffee consumption growth aside and with the steady increase in consumption within new consumer markets in Asia and within many producer countries, one might expect that the longer term surplus supply is not significant and there are little prospects for much growth in world stocks for the next 2016/2017 coffee year. Thus one would think that the fundamentals of the market should be supportive for some degree of medium term recovery, but so long as global equity and commodity investment sentiment remain pessimistic in nature, the fundamentals provide little inspiration for market sentiment.

The March on March contracts arbitrage between the markets broadened yesterday, to register this at 53.45 usc/Lb., while this equates to a 45.90% price discount for the London robusta coffee market. This arbitrage remaining relatively attractive to roasters in comparison to arabica coffee prices, with the good discount most likely due to remain in place for the foreseeable future, in line with steady robusta shipments out of Vietnam.

The Certified washed Arabica coffee stocks held against the New York exchange were seen to increase by 33 bags yesterday; to register these stocks at 1,624,236 bags. There was meanwhile a larger in volume 3,521 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 39,012 bags.

The commodity markets along with the equity markets tended to lose their overall lustre yesterday and with the influential Oil markets one again taking a tumble, while there was no supportive news coming to the fore from any of the major economic blocs. The New York arabica Coffee, Orange Juice, Wheat, Soybean, Gold, Silver and Platinum markets had a day of buoyancy and the Natural Gas market was steady, while the Oil, Sugar, Cocoa, London robusta Coffee, Cotton, Copper and Corn markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.29% lower; to this Index registered at 362.78. The day starts with the U.S. Dollar steady in early trade and trading at 1.423 to Sterling and 1.084 to the Euro, while North Sea Oil is near to steady in early trade and is selling at 28.65 per barrel.

The London and New York markets opened the day on a surprisingly softer track yesterday and taking this track into the afternoon, when the London market recovered its losses and moved back up into modest positive territory, while the New York market remained within its softer zone for a while, prior to joining the London market in positive territory. The London market did however falter as the day progressed and headed south on a downside track and with the New York market likewise dipping back into negative territory, but while the New York market managed to bounce back into positive territory the London market had run out of steam and maintained its softer track to the close. The London market ended the day on a softer note and with 46.2% of the earlier losses of the day intact, while the New York market ended the day on a modestly positive note and with 31.1% of the earlier gains of the day intact. This close does little to inspire and with the inability of the markets to maintain any confident muscle and nothing in the way of supportive fundamental news coming to the fore, one might expect to see little better than a hesitantly near to steady start for early trade today against the prices set yesterday, as follows:

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

JAN 1340 – 12                                         MAR 116.45 + 0.45
MAR 1389 – 6                                         MAY 118.70 + 0.45
MAY 1417 – 8                                           JUL 120.60 + 0.45
JUL 1446 – 8                                             SEP 122.45 + 0.45
SEP 1473 – 8                                            DEC 124.80 + 0.40
NOV 1496 – 9                                         MAR 127.25 + 0.45
JAN 1517 – 10                                        MAY 128.40 + 0.40
MAR 1538 – 10                                         JUL 129.45 + 0.35
MAY 1560 – 10                                         SEP 130.50 + 0.35
JUL 1585 – 10                                           DEC 131.80 + 0.55