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


I. & M. Smith (Pty) Ltd.

Coffee Market Report

26 Feb 2016
The European Coffee Federation have reported that the declared coffee stocks held in the ports of Antwerp, Bremen, Hamburg, Genova, Le Havre and Trieste increased by 53,117 bags or 0.45% during the month of December, to register the stocks at 11,860,217 bags as at the end of the month. These stocks fuel not only the Western European markets but also the Eastern European market, which total a demand of approximately 52 million bags, or approximately 1 million bags per week.

However if one is to consider that the stocks do not include bulk container transit coffees, roaster on site inventories and private stocks held in non-declared warehouses and thus one might look to add at the very least 2 million bags and possibly as much as 3 million bags to the number above. This would indicate that the overall coffee stocks within Europe as at the end of October would have been close to 14 million bags and are therefore sufficient in number, to fuel a very safe in excess of 14 weeks of roasting demand. A factor one would think which would have also contributed to the lack of confidence in the short term market, on the part of the both the European roasters and the speculative sectors of the terminal markets.

The General Statistics Office of the Vietnam Government and with the months export registrations in hand to date, have forecasted the countries coffee exports of mostly robusta coffees for the month of February shall be approximately 25.6% higher than the same month last year, at a total of 2 million bags. This figure would result in the countries coffee exports for the first five months of the present October 2015 to September 2016 coffee year to be approximately 18.9% higher than the same period in the previous coffee year, at a total of 10.46 million bags.

This good start to the present coffee year from Vietnam is fuelled by fact that in addition to a larger new crop that many have reported to have been around 28 million bags, there were at least 5 million bags and some speculate as much as 8 million bags of carryover stocks of coffee within the country. Thus with most probably as much as 35 million bags of coffee to market, there is a relatively free flow of robusta coffees due from Vietnam for this year and one might speculate the potential for exports of close to 26 million bags due for the coffee year. If not even more, if the forecasts for lower volumes of supply from Indonesia prove to be true.

But perhaps what is more noticeable about the rising volumes of coffee exports out of Vietnam that this is despite the internal market price resistance and the resulting inflated export price differentials relative to the reference prices of the London market, that it is forcing exporters to demand. Thus indicating that with the London market maintaining a relatively soft trade range for the year so far, that consumer industries and lacking much in the way of selling aggression from Indonesia, are well prepared to pay up for good volumes of robusta coffee supply from Vietnam.

Meanwhile this week has been another week of good rains for much of the main arabica coffee growing districts within Brazil, while the conilon robusta coffee districts in the east of Brazil continue to experience limited rains. Thus little has changed in terms of the forecasts for a much larger new arabica crop and a more modest new conilon robusta crop, for Brazil this year.

The May on May contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 54.10 usc/Lb., while this equates to a 46.58% 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 275 bags yesterday; to register these stocks at 1,554,764 bags. There was meanwhile no change to the number of bags pending grading for this exchange; to register these pending grading stocks at 5,689 bags.

The commodity markets gained some support from improved economic figures out of the U.S.A. yesterday, which countered a modest increase in U.S.A. unemployment figures. To see the overall macro commodity index remain relatively steady for the day. The Sugar, Cotton, Orange Juice, Wheat, Gold and Silver markets had a day of buoyancy and the Cocoa, London robusta Coffee markets were near to steady, while the Oil, Natural Gas, New York arabica Coffee, Copper, 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 0.03% higher; to see this Index registered at 368.39. The day starts with the U.S. Dollar is near to steady in early trade and trading at 1.396 to Sterling and 1.105 to the Euro, while North Sea Oil is showing buoyancy in early trade and is selling at 34.22 per barrel.

The London and New York markets had a mixed day yesterday and with the London market coming under early pressure and encountering some sharp losses into early afternoon trade, while the New York market had a near to steady start and started to add some good value during the afternoon. This perhaps assisted for the London market to start on a path of recovery and despite the New York market running out of steam and once again head south, the London market continued on its upside path, albeit within negative territory. This saw the London market almost make a full recovery, while the New York market slipped back through par by the end of the day. The London market ended the day on a near to steady note and having recovered 89.7% of the earlier losses of the day by the close, while the New York market ended the day on a soft note and with 77.3% of the earlier losses of the day intact. This close and despite the late in the day buoyancy within the London market does little to inspire and with the charts looking soft for the present, one might expect little better than a near to steady start for early trade today against the prices set yesterday, as follows:


MAR 1329 – 6                                          MAR 114.65 – 0.40
MAY 1368 – 3                                          MAY 116.15 – 0.85
JUL 1397 – 5                                               JUL 118.05 – 0.80
SEP 1422 – 7                                               SEP 119.70 – 0.80
NOV 1445 – 7                                            DEC 121.75 – 0.60
JAN 1468 – 7                                            MAR 123.80 – 0.55
MAR 1488 – 7                                          MAY 125.10 – 0.50
MAY 1513 – 3                                             JUL 126.35 – 0.40
JUL 1533 – 3                                               SEP 127.45 – 0.40
SEP 1561 – 3                                              DEC 128.80 – 0.45