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

Coffee Market Report

27 Jan 2016
The National Export Centre in Nicaragua has reported that the country’s coffee exports for the month of December was 10,624 bags or 22.54% higher the same month in the previous year, at a total of 58,370 bags. This improved performance does not however counter the slow start to this new crop and the coffee year for Nicaragua, while it contributes to the countries cumulative coffee exports for the first three months of this new October 2015 to September 2016 coffee year to being 53,075 bags or 29.78% lower than the same period in the previous coffee year, at a total of 125,135 bags.

This report from Nicaragua in terms of the more modest export volumes for the first three months of the new coffee year is not unexpected, as weather conditions for the second half of last year over the Central American region have resulted in a slower maturing of new crop cherries. Thus resulting in reports of four to as much as a six week delay to the start of the harvest for many farmers within the region, has disrupted the early flow of new crop coffees from the Central American producers, but one can expect with an overall larger regional crop due, to see steadily rising export volumes over this and that following months.

The trading activity within the internal market in Vietnam with only one and half weeks to go before the country shall close down for approximately ten days to celebrate the Tet New Year (Year of the Monkey) holidays, has picked up in volume this week. In this respect, the expectations are that this shall continue into at least the middle of next week, while farmers look to bring in cash to finance their holiday celebrations. While this commercial activity and with the accompanying price fixation hedge selling, has to have some modest negative impact upon the fortunes for the London market.

In the meantime the Vietnam Agricultural Ministry and with the evidence of export registrations in hand, are forecasting that the countries coffee exports of mostly robusta coffee for the month of January shall be 8% higher than the same month last year, at a total of 2.49 million bags. These higher volume exports are most likely however with the pending 6th. February to 14th. February interruption to commercial activity within Vietnam, precede a much less active export activity for the follow on month.

The same report and based on the estimated export figures for the month, has indicated that the Vietnam coffee exports of mostly robusta coffees for the first four months of the present October 2015 to September 2016 coffee year, shall be 13.9% higher than the same period in the previous coffee year, at a total of 8.21 million bags. This is despite the reference prices of the London market having been on a steady step down value track for the same period, which would seemingly indicate that with less competition from reducing export volumes out of Indonesia that the internal market price resistance is no longer tending to stall Vietnam export activity.

The March on March contracts arbitrage between the markets broadened yesterday, to register this at 53.65 usc/Lb., while this equates to a 45.97% 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 decrease by 9,209 bags yesterday; to register these stocks at 1,615,027 bags. There was meanwhile a smaller in volume 4,536 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 34,476 bags.

The commodity markets had a somewhat erratic day yesterday with the volatile Oil markets on something of a roller coaster and following a slide south earlier in the day, to experience a sharp late in the day upside correction. This was accompanied by similar erratic moves on the part of the overall macro commodity index, which was providing mixed signals to many markets through the day. The Oil, New York arabica Coffee, Copper, Wheat, Corn, Gold, Silver and Platinum markets finally had a positive day and the Cocoa and London robusta Coffee markets were steady, while the Natural Gas, Sugar, Cotton, Orange Juice and Soybean markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.91% higher; to see this Index registered at 366.07. The day starts with the U.S. Dollar steady in early trade and trading at 1.434 to Sterling and 1.086 to the Euro, while North Sea Oil is showing buoyancy in early trade and is selling at 30.80 per barrel.

The London and New York markets opened the day yesterday on a hesitantly slow and softer note and with both markets taking an uncertain softer track, into the afternoon trade. The markets did however start to show some degree of stability as the afternoon progressed, with both markets finally struggling back into very modest positive territory. Both the markets tended to bounce mostly above par for the rest of the day’s trade and to end the day, on the positive side of par. The London market ended the day on a steady note and with 9.1% of the earlier modest gains of the day intact, while the New York market ended the day on positive note and with 33.3% of the earlier modest gains of the day intact. This close provides little in the way of direction but is in terms of its modestly positive nature somewhat beneficial for confidence and one might expect that it has the chance to inspire something of a steady start for early trade today, against the prices set yesterday, as follows:

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

JAN 1341 + 1                                            MAR 116.70 + 0.25
MAR 1390 + 1                                          MAY 118.85 + 0.15
MAY 1418 + 1                                            JUL 120.65 + 0.05
JUL 1448 + 2                                               SEP 122.45 unch
SEP 1474 + 1                                              DEC 124.80 unch
NOV 1497 + 1                                           MAR 127.20 – 0.05
JAN 1518 + 1                                            MAY 128.35 – 0.05
MAR 1539 + 1                                             JUL 129.45 unch
MAY 1561 + 1                                             SEP 130.45 – 0.05
JUL 1586 + 1                                               DEC 131.70 – 0.10