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

 

I. & M. Smith (Pty) Ltd.

Coffee Market Report

01 Feb 2016
The latest Commitment of Traders report from the New York arabica coffee market has seen the Non Commercial Speculative sector of this market decrease their net short sold position within the market by 6.76% during the week of trade leading up to Tuesday 26th. January; to register a net short sold position of 29,911 Lots. This net short sold position which is the equivalent of 8,479,636 bags has most likely been little changed to perhaps marginally reduced, following the period of mixed but overall mostly sideways trade, which has since followed.

The International Coffee Organisation have reported that the world coffee exports for the month of December were 1.42% higher than the same month in the previous coffee year, at a total of 9.31 million bags. This improved performance they report has contributed to the world coffee exports for the first three months of the present October 2015 to September 2016 coffee year to being 2.6% higher than the same period in the previous coffee year, at a total of 26.9 million bags.

In this respect they note that while the exports of mostly robusta coffees from Vietnam which continued to experience internal market price resistance for the last quarter of last year and the first quarter of the new coffee year were 11% lower than the same period of the previous coffee year, the exports from Colombia were 14% higher and the exports from Brazil were 5% higher than the same period in the previous coffee year. Thus there were mixed contributions from the world’s three largest coffee producers for the first quarter of this new coffee year, but seemingly and despite the relatively soft prices in U.S. dollar terms, more than sufficient consumer market coffee supply.

Meanwhile with Vietnam having just completed what has been reported to have been a larger new crop and with the El Nino inspired rains in South East Brazil indicating a larger new crop for later on during this year and with an overall larger new Central American crop presently in harvest, the prospects for an approximately 1 million bags lower new Colombian midyear lower new Mitaca crop is not really threatening for medium to longer term global coffee supply. Thus the fundamentals of the market remain relatively bearish for the present, albeit that there are many who see the terminal markets to be somewhat over sold and thus, limiting the further down side potential for the markets. The funds are however by nature unpredictable and there is no guarantee, that they cannot still take more weight out of the markets.

There is however in terms of the softer nature of the markets on Friday and accompanied by a firming of the Brazil Real to the U.S. dollar which has seen the Real break back from trading at over 4.07 to the dollar and trading this morning at 3.99 to the dollar, the prospects for slowing selling activity out of Brazil and the resulting price fixation hedge selling into the market for today. But with Vietnam due to close on Friday for the ten days of Tet New Year holidays, there is likely to be some degree pre-holiday selling pressure coming to the London robusta market for the next couple of days, which might contribute to some degree of dampening of coffee market spirits. This Tet New Year holiday for the coming week, shall be accompanied by the closing in Brazil for the annual carnival holiday that shall be held over Friday 6th. to the Wednesday 10th. February, which shall see the two leading coffee exporters on the side-lines of trade for most of next week.

The May on May contracts arbitrage between the London and New York markets narrowed on Friday, to register this at 54.36 usc/Lb., while this equates to a 45.87% 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 2,265 bags on Friday; to register these stocks at 1,607,584 bags. There was meanwhile a larger in volume 5,293 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 30,565 bags.

The commodity markets were mixed on Friday and many markets seemed to shrug off the negative impact of reports of slower growth for the U.S.A. economy, to see the Oil markets continue to take the lead to inspire buoyancy for the overall macro commodity index for the day. The Oil, Natural Gas, Copper, Wheat, Corn, Soybean, Gold and Silver markets had a day of buoyancy, while the breakfast commodities Sugar, Cocoa, Coffee and Orange Juice and accompanied by the Cotton market had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.58% higher; to see this Index registered at 370.35. The day starts with the U.S. Dollar near to steady in early trade and trading at 1.426 to Sterling and 1.084 to the Euro, while North Sea Oil is tending softer in early trade and is selling at 33.25 per barrel.

The London market opened the day on Friday just south of par, while the New York market opened the day with modest buoyancy and with both markets taking this mixed track sideways into the afternoon trade, but within and environment of thin and lacklustre trade. As the afternoon progressed however the New York market ran out of steam and with the combination of origin fixation selling and speculative liquidation coming into play, this market dipped back to join the London market in negative territory and with the London market losing some more weight. The London market continued to end the day on a soft note and with 78.3% of the earlier losses of the day intact, while the New York market likewise closed on a soft note and with 84.8% of the earlier losses of the day intact. This close does little to inspire and one might expect to see little better than a near to steady start for early trade today against the prices set on Friday, as follows:

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

JAN 1368 unch                                       MAR 116.35 – 2.80
MAR 1382 – 20                                      MAY 118.50 – 2.80
MAY 1414 – 18                                        JUL 120.25 – 2.75
JUL 1443 – 17                                          SEP 121.90 – 2.70
SEP 1470 – 15                                         DEC 124.10 – 2.55
NOV 1492 – 14                                      MAR 126.35 – 2.50
JAN 1514 – 13                                       MAY 127.60 – 2.35
MAR 1535 – 13                                       JUL 128.75 – 2.25
MAY 1557 – 13                                       SEP 129.85 – 2.15
JUL 1582 – 13                                        DEC 131.10 – 2.25