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

Coffee Market Report

13 May 2022

Trade within Vietnam has been reported to have remained slow over the past week, with dwindling coffee stocks available from the current crop harvest. The rain season has begun and is expected to continue until early October, ahead of the new crop 2022/23 harvest.

The new April 2022 to March 2023 Indonesia coffee harvest is picking up pace, within this country that traditionally produces an average of 85% robusta and 15% arabica coffees from their harvest per annum. This new Robusta harvest has been estimated to be 0.53% lower than the previous coffee year at a steady total of 9.3 million bags, with the new Arabica harvest which has been estimated to remain steady at a total of 1.3 million bags.

Recent weather reports suggest that the new monsoon season over the main coffee districts in South West India may develop sooner than expected this year, the monsoon season traditionally runs from June through to September, however rains are expected to start falling during the next week. One might speculate that so long as the new monsoon season brings good rains to the fore, that there will be no climatic problems for this mainly robusta producing nation for which the new crop has new crop has been estimated at a median 5.50 million bags.

The U.S. Governments National Weather Service’s Climate Prediction Centre have updated their forecast to report that following the La Niña climatic condition that has developed, there is subsequently, a 58% chance for a La Niña phenomenon weather pattern to develop through August to October 2022. The forecasters have released fresh reports that the La Niña weather conditions are expected to increase towards the latter end of the year, with a 61% chance for these conditions to continue through to the end of the year.

The La Niña weather phenomenon is characterised by unusually cold temperatures in the equatorial Pacific Ocean and historically brings with it excessive rains for the Pacific Rim countries and in terms of coffee, having an impact upon the climatic conditions within Colombia, Indonesia and Peru, while it can also influence dry conditions for the arabica coffee districts in Southeast Brazil. Albeit there is some time ahead, the development timing and arrival if any, will play a part in the strength and influence, of such a weather phenomenon.

This weekend shall see the global coffee market players focus upon the cold front that was expected to reach the main arabica coffee districts of Southeast Brazil, the extent of which has inspired the recent speculative short covering buying activity in the coffee futures markets. For the most part, weather forecasts indicate that it is unlikely to bring freezing temperatures to the coffee belt, the vast coffee growing areas indicating minimum temperatures to be above 5 degrees Celsius.

The most recent lockdown developments related to an increase in Covid19 occurrences within China and in particular the city of Shanghai, remains tight. The city has been under strict lockdown regulations since the 28th. of March this year and with no clear easing of restriction in sight. While internationally there continues to be challenges for shipments in many regions, there were earlier in the year indications that Asian congestion was beginning to ease somewhat. The recent lockdown measures could increase disruptions to supply chains of various commodities within the city, and extend the already vulnerable global logistics supply chain, with the world’s largest container port in Shanghai not operating at 100% capacity.

The July 2022 to July 2022 contract arbitrage between the London and New York markets narrowed yesterday to register this at 121.91 usc/Lb. This equates to 56.62% price discount for the London Robusta coffee market. This wide arbitrage will likely be viewed by price sensitive roasters as an attractive alternative discount for robusta against the comparatively higher value arabica coffee. 

The Certified washed Arabica coffee stocks held against the New York exchange were seen to increase by 7,325 bags yesterday, to register these stocks at 1,113,129 bags, with 95.64% of these certified stocks being held in Europe at a total of 1,064,645 bags and the remaining 4.36% being held in the USA at a total 48,484. Of this, a total 574,068 bags, or 51.57% of the coffees registered and stored in consumer country certified warehouses of the exchange, Brazil washed arabica, and a further 40.04% of these certified coffees, originating from Honduras. There was a 10,080 bag decrease to the number of bags pending grading to the exchange; to register 19,700 bags pending grading on the day.

It was a softer day on the commodity markets yesterday, the US Dollar gained ground against a basket of other currencies, a bearish factor for many commodities traded in other currencies. The Sugar, Corn, Soybean and Wheat markets ended the day on a positive note, while the Cocoa, Coffee, Gold, Silver, Platinum and Palladium markets ended the day on a softer note. The day starts with the U.S. Dollar trading at 1.222 Sterling, at 1.040 the Euro and with the US Dollar buying 5.134 Brazil Real.

The New York market started the day yesterday trading on a very soft note while the London market started the day yesterday trading on a modest firmer note. Both markets would quickly trend softer after attracting a degree of selling pressure, this would see the markets continue on a softer path for the remainder of the morning session, accentuating the losses for the day. As the afternoon progressed the New York and London markets would continue to project in a negative direction which would see the markets soon hit a floor for the day, pressured by long liquidation selling. Both the New York and the London markets steadily tracked upward from the lows of the day to stage a modest recovery during the afternoon session. This saw the New York market recover some of the earlier losses of the day to settle on a softer note, with the London market following the trend to likewise settle on a softer note at the close.

The London market ended the day on a negative note with 54.05% of the earlier losses of the day intact, while the New York market ended the day on a likewise negative note with 62.59% of the earlier losses of the day intact. This softer close for both the New York and London markets might indicate some degree of consolidation post the significant gains made on Wednesday, however the markets did recover some of the earlier losses of the day which may indicate that the markets are due for a hesitant start to early trade today, against the prices set yesterday, as follows:

LONDON ROBUSTA US$/MT                NEW YORK USC/LB.

JUL 2058 – 20                                            JUL 215.30 – 4.60
SEP 2061 – 19                                            SEP 215.35 – 4.45
NOV 2057 – 16                                          DEC 215.05 – 4.30
JAN 2054 – 15                                           MAR 214.30 – 4.25
MAR 2050 – 15                                         MAY 213.35 – 4.20
MAY 2046 – 15                                         JUL 211.95 – 4.05
JUL 2044 – 15                                           SEP 210.00 – 4.00
SEP 2041 – 15                                           DEC 207.80 – 3.95