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

 

I. & M. Smith (Pty) Ltd.

Coffee Market Report

10 Feb 2016
The coffee markets are lacking much in the way of fundamental news for the present and for the present suffer under the cloud of good longer term supply due for the year from the leading producers Brazil and Vietnam, who both remain on holiday for today. While adding to the complacency within the markets is the fact that all indications remain that the overall Central American new crop that is still coming to the market, shall be larger than the previous crop.

There is however the factor of the El Nino that is due to taper off in influence by the second quarter of this year, which has undoubtedly with the dry and hot weather that it has caused for parts of Colombia and Indonesia, done some damage to the crop potential for both countries. However so far, such damage is not seen to be threatening to medium to longer term global coffee supply, as there is more than sufficient coffee due in from Brazil, Vietnam and Central America, to fulfil longer term consumer market demand.

Thus for the present the coffee markets remain within their soft trading range and despite the potential for Colombia and Indonesia to jointly see a 3 million to perhaps even as much as a 4 million bags dip in production for this year, there would appear to be no indication that the markets might experience any degree of significant recovery during this year. Albeit that most market players still believe in some degree of modest recovery due for later in the year, for the well sold coffee terminal markets.

One might however question what the longer term effects of the prevailing soft prices might be as even with the assistance of the strong U.S. Dollar to take some of the bite out of the negative effects of the soft international coffee prices, there shall most likely be some degree of reduced inputs within the Central American producer bloc and possibly also, within some of the other producer countries. In this respect and against the steady new market consumption growth, the prospects for a dip in coffee supply for the coming year and the chance that 2017 shall see tighter overall coffee supply and some buoyancy in prices.

The May on May contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 52.62 usc/Lb., while this equates to a 45.03% 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 1,940 bags yesterday; to register these stocks at 1,591,658 bags. There was meanwhile a larger in volume 7,510 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 10,791 bags.

The commodity markets were mixed in trade yesterday, but despite some support from the softer U.S. dollar that is in play, the overall macro commodity index took a softer track for the day. The Gold and Silver markets had a positive day’s trade and the London robusta Coffee market was steady, while the Oil, Natural Gas, Sugar, Cocoa, New York arabica Coffee, Cotton, Copper, Orange Juice, Wheat, Corn and Soybean markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 1.20% lower; to see this Index registered at 364.69. The day starts with the U.S. Dollar near to steady in early trade and trading at 1.447 to Sterling and 1.128 to the Euro, while North Sea Oil is steady in early trade and is selling at 29.05 per barrel.

The London and New York markets started the day on a lacklustre steady to soft note but with both markets attracting some support and showing some buoyancy in early afternoon trade, albeit that with both Vietnam and Brazil on holiday and off the field of play, there was limited producer participation within the markets. Both markets did however falter as the afternoon progressed and while the London market attracted sufficient support to end the day on a steady note, the New York market moved back into negative territory and ended the day on a soft note and with 91.7% of the earlier losses of the day intact. This close does little to inspire and one might expect that with the charts looking somewhat negative for the present, to see little better than hesitant steady to soft start for the London market and perhaps a steady start for the New York market for early trade today against the prices set yesterday, as follows:

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

MAR 1387 + 1                                       MAR 114.75 – 1.00
MAY 1416 unch                                    MAY 116.85 – 1.10
JUL 1445 unch                                         JUL 118.85 – 1.10
SEP 1472 unch                                         SEP 120.70 – 1.05
NOV 1495 unch                                      DEC 123.00 – 1.00
JAN 1516 – 2                                         MAR 125.20 – 1.00
MAR 1537 – 2                                       MAY 126.65 – 0.95
MAY 1559 – 2                                         JUL 128.05 – 0.90
JUL 1580 – 2                                           SEP 129.30 – 0.90
SEP 1607 – 2                                          DEC 130.75 – 0.95