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

Coffee Market Report

18 Feb 2016
The National Coffee Association of Guatemala have reported that the countries coffee exports for the month of January were 8,641 bags or 4.34% lower than the same month last year, at a total of 190,307 bags. This figure contributes to the countries cumulative coffee exports for the first four months of this new October 2015 to September 2016 coffee year to being 29,965 bags or 7.46% higher than the same period in the previous coffee year, at a total of 431,699 bags.

It is still early days for the new crop in Guatemala, but the positive start to this coffee years export performance does seemingly indicate that with the new crop harvest in progress, that the forecasts for and approximately 7% larger new crop might have some reality. While in terms of the higher grown coffees from Guatemala having a dedicated brand name support from mostly North American and Japanese roasters, the exports are attracting good positive differentials and are thus, allowing for exporters and ultimately the farmers, to counter the negative influences of the prevailing soft New York market.

The traditionally conservative Brazilian and U.S.A. based coffee trade house Wolthers Douque have come forth with their latest forecast for the new Brazil crop, which they have pegged at 14 million bags of conilon robusta coffees and between 40 million to 41 million bags of arabica coffees. It has to noted however in terms of this forecast for a new Brazil crop of between 54 million and 55 million bags that the same company had reported the previous 2015 Brazil crop at 45.6 million bags and therefore approximately 4 million bags lower than many other respected reports, which might well indicate that Wolthers Douque are underpinning the many forecasts for a new Brazil crop of close to 58 million bags.

Perhaps more significant in terms of the fact that the El Nino influenced dry conditions over Colombia and Indonesia shall result in perhaps a dip of 1 million bags in the forthcoming new Colombian Mitaca crop and a 2.5 million to 3 million bags dip in the forthcoming Indonesian robusta coffee crop, is that the approximately 8 million bags increase in overall Brazil coffee supply shall result in a modest surplus supply for the second half of this year and thereon for the next October 2016 to September 2017 coffee year. That is of course if there are no unforeseen climatic problems coming to the fore during the year, to impact upon the crops in any of the main coffee producer blocs and with forecasts for a new La Nina phenomenon due for the last quarter of the year and likewise, the negative effects of soft prices for many producers which might result in reduced inputs and smaller crops.

Thus with Brazil coffee stocks now very much depleted and needing to be rebuilt, one might suggest that even with a small overall world surplus coffee supply for the second half of the year and into the next coffee year, that internal market price resistance within many of the producers shall eventually start to inspire some modest price recovery for the second half of the year. In this respect , one might speculate that the markets might possibly now be on the low side of the potential trading range for the year, with the possibility to see prices starting to firm during the second half of the year.

The May on May contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 51.19 usc/Lb., while this equates to a 43.90% 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 decrease by 3,166 bags yesterday; to register these stocks at 1,565,228 bags. There was meanwhile no change to the number of bags pending grading for this exchange; to register these pending grading stocks at 8,005 bags.

The commodity markets mostly had a day of buoyancy yesterday and lead by the Oil markets, where there is once again speculation that there might be general producer agreement on the limiting of supply to January levels. This buoyed the fortunes of the macro commodity index for the day, which assisted to bring a degree of confidence to trade within many markets. The Oil, Natural Gas, Cocoa, Cotton, Copper, Wheat, Corn, Soybean, Gold and Silver markets had a day of buoyancy and the London robusta Coffee market had a steady day, while the Sugar, New York arabica Coffee and Orange Juice markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 1.06% higher; to see this Index registered at 370.91. The day starts with the U.S. Dollar steady in early trade and trading at 1.429 to Sterling and 1.114 to the Euro, while North Sea Oil is near to steady in early trade and is selling at 33.75 per barrel.

The New York and London markets both started the day on a near to steady note and with the markets moving above par for early afternoon trade, but coming under pressure to move either side of par for the rest of the day and with the market taking a generally sideways track for the day. The London market eventually ended on a steady note and the New York market on a marginally softer note and with 33.3% of the earlier losses of the day intact. This relatively steady close being likely to support a follow through steady start for early trade today against the prices set yesterday, as follows:

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

MAR 1414 – 5                                          MAR 114.55 – 0.35
MAY 1442 unch                                       MAY 116.60 – 0.40
JUL 1468 – 1                                              JUL 118.50 – 0.30
SEP 1488 – 4                                              SEP 120.30 – 0.20
NOV 1507 – 6                                           DEC 122.40 – 0.15
JAN 1526 – 6                                           MAR 124.60 – 0.10
MAR 1546 – 6                                         MAY 125.90 – 0.05
MAY 1566 – 6                                           JUL 127.10 + 0.05
JUL 1584 – 6                                              SEP 128.25 + 0.05
SEP 1611 – 6                                             DEC 129.80 + 0.20