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


I. & M. Smith (Pty) Ltd.

Coffee Market Report

04 Mar 2016
The weather conditions in Brazil continue to be mixed with excessive rains falling within the main arabica coffee regions of the country, while the main conilon robusta regions of the country within Espirito Santo remain within a situation of partial drought. It is however common with Espirito Santo for farmers to use supplementary irrigation to support their crops, but with reservoirs running dry, it is resulting in farmers struggling to counter the lack of rain for their close to maturity new crop and further confirming the forecasts for a modest new conilon robusta crop.

Meanwhile with the Brazil Real having firmed against the U.S. dollar it is contributing to internal market price resistance, which has resulted in lacklustre trade for forward coffee sales out of Brazil for the present. But one can speculate that with many if not most of the Brazilian farmers and coffee cooperatives already well covered with forward sales commitments for their new crop, that it is to be expected that selling aggression would be on the wane. This decline in the volume of new crop arabica coffee forward selling and the related price fixation hedge selling into the New York market, is however assisting for the market to show a degree of buoyancy.

The Uganda Coffee Development Authority are voicing confidence in their industry which has since it has since it became a free market industry been steadily growing in volume, with their latest forecasts for coffee exports for this year forecasted to increase by 15% to approximately 3.8 million bags. Thus maintaining Uganda’s prominence within Africa as the continents leading coffee exporter, despite the country being second in terms of production to Ethiopia, where the domestic coffee market absorbs a high percentage of the country’s coffee production.

The seasonal talk of dry weather threat to the next Vietnam coffee crop is once again coming to the fore, with forecasts that due to the El Nino phenomenon that the new rain season will be delayed and that with the dry winter season water resources declining, the restricted supplementary coffee farm irrigation might be negative for the prospects of the next Vietnam crop. It is however early days and with the country a month ahead for the next summer rain season; these reports are largely ignored for the present, as is evident from the lacklustre nature of the related London robusta coffee market.

One might speculate however that fundamentally and despite the prospects for a much larger new Brazil arabica coffee crop due to impact during the second half of this year, that the prospects for an El Nino inspired smaller new Mitaca crop in Colombia and lower coffee production in Indonesia this year shall in time start to impact upon market sentiment. In this respect to contribute in time to a degree of market buoyancy and with the prospects for the coffee markets to start to catch up with the value of physical sales price, to thus move into a modestly higher trading range during the second half of the year.

The May on May contracts arbitrage between the London and New York markets broadened yesterday, to register this at 54.62 usc/Lb., while this equates to a 46.35% 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 7,560 bags yesterday; to register these stocks at 1,526,101 bags. There was meanwhile a smaller in volume 6,880 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 6,880 bags.

The commodity markets were mostly buoyant for trade yesterday and with a softer U.S. dollar assisting to buoy sentiment, with the overall macro commodity index showing buoyancy through the day. The Oil, Sugar, New York arabica Coffee, Cotton, Copper, Orange Juice, Wheat, Soybean, Gold and Silver markets had a positive day’s trade and the Cocoa and London robusta Coffee markets were steady for the day, while the Natural Gas market was softer for the day. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.51% higher; to see this Index registered at 372.78. The day starts with the U.S. Dollar steady in early trade and trading at 1.416 to Sterling and 1.095 to the Euro, while North Sea Oil is steady in early trade and is selling at 36.15 per barrel.

The London market started the day yesterday on a softer note, while the New York market showed some early buoyancy and with the markets maintaining this mixed stance into the afternoon trade, but with the New York market lacking the negative pressure that came with thin producer selling activity above the market and adding value, the London market gained some confidence and moved back positive territory. The London market did however encounter selling pressure at the highs and fell back towards par, while the New York market continued to show some muscle and to maintain a positive stance for the day. The London market ended the day on a modestly positive note and with only 20% of the earlier gains of the day intact, while the New York market ended the day on a positive note and with 71.9% of the earlier gains of the day intact. This relatively positive close and with the U.S. dollar sporting a softer stance is likely to inspire a steady to perhaps even buoyant start to early trade today, against the prices set in trade yesterday, as follows:


MAR 1366 + 8                                              MAR 115.60 + 2.25
MAY 1394 + 3                                              MAY 117.85 + 2.30
JUL 1424 + 4                                                   JUL 119.60 + 2.20
SEP 1451 + 4                                                   SEP 121.30 + 2.15
NOV 1474 + 5                                                DEC 123.30 + 2.05
JAN 1495 + 5                                                MAR 125.30 + 1.85
MAR 1515 + 6                                              MAY 126.50 + 1.65
MAY 1537 + 5                                                JUL 127.45 + 1.40
JUL 1558 + 6                                                  SEP 128.35 + 1.20
SEP 1584 + 6                                                 DEC 129.80 + 1.20