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

Coffee Market Report

07 Mar 2016
The latest Commitment of Traders report from the New York arabica coffee market has seen the Non Commercial Speculative sector of this market increase their net short sold position within the market by 62.28% during the week of trade leading up to Tuesday 1st. March; to register a net short sold position of 27,026 Lots. This net short sold position which is the equivalent of 7,661,751 bags has most likely been decreased again, following the period of mixed but overall positive trade, which has since followed.

The International Coffee Organisation has reported that the global coffee exports for the month of January were 0.9% lower than the same month last year, at a total of 8.96 million bags. This small dip does not however counter the fact that global coffee exports for the first four months of the present October 2015 to September 2016 coffee year are 1.7% higher than the same period in the previous coffee year, at a total of 35.87 million bags.

This report indicating that with the mainstream consumer markets holding the equivalent of thirteen weeks of roasting demand in coffee stocks, that there is presently no pressure upon consumer industries to chase origin supply and thus the physical coffee trade remains relatively lacklustre in nature. But this aside the International Coffee Organisation remains confident in its assessment that global coffee consumption continues to steadily increase, with consumption seen by the organisation to now exceed 150 million bags per annum.

This consumption figure is largely seen to be a reality by most leading industry players and would confirm the fact that official International Coffee Organisation production figures aside which are by nature conservative in nature, that there is a global coffee supply deficit for the present coffee year that shall exceed three million bags. However with the larger new Brazil arabica coffee crop due to start to come into play for the second half of the year and aside from a modest dip in Colombian production along with a dip in Indonesian coffee production, that global coffee supply might move into a modest two to perhaps even three million bags surplus for the next 2016/2017 coffee year. This is however not a significant surplus and with Brazil needing to rebuild its depleted coffee stocks, it would make one think that there is reason to believe in continued internal market price resistance for the producers and a degree of market buoyancy due as the year progresses.

The Coffee industry is focused this week on the International Coffee Organisations 4th. World Coffee Conference, which is being hosted by Ethiopia from the 6th. to the 8th. March and with activities planned to carry on to the 11th. March. But while one might expect some degree of despair to be voiced by the majority of the producer delegates attending this conference, as producers try to work through the prevailing soft trading range of the coffee terminal markets, there is most likely due to be some market supportive longer term supply scare stories being voiced by many producers.

The May on May contracts arbitrage between the London and New York markets broadened on Friday, to register this at 57.86 usc/Lb., while this equates to a 47.80% 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 4,095 bags on Friday; to register these stocks at 1,522,006 bags. There was meanwhile a smaller in volume 2,670 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 9,550 bags.

The commodity markets were buoyed in sentiment on Friday by a weaker U.S. dollar, prospects of further stimulus due within China to assist to support economic growth and accompanied by new of better than expected February employment figures, out of the U.S.A. The Oil, Natural Gas, Cocoa, New York arabica Coffee, Cotton, Copper, Orange Juice, Corn, Soybean, Gold and Silver markets had a firmer day’s trade and the London robusta Coffee and Sugar markets were near to steady for the day, while the Wheat market had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 1.62% higher; to see this Index registered at 378.81. The day starts with the U.S. Dollar steady in early trade and trading at 1.421 to Sterling and 1.099 to the Euro, while North Sea Oil is showing some buoyancy in early trade and is selling at 38.90 per barrel.

The London market started the day on Friday with some modest buoyancy, while the London market started the day on a hesitantly steady note and with both markets maintaining this somewhat positive stance into the afternoon trade. The New York market maintained its buoyancy as the afternoon progressed and with the firmer Brazil real dampening selling activity out of Brazil and the positive influences of the overall macro commodity index in play, the New York market started to add value late in afternoon trade, but with the London market struggling to maintain its steady stance that saw trade moving either side of par. The London market ended the day on its uncertain track and on a relatively steady note and having recovered 88.9% of the earlier losses of the day, but with the New York market showing some late muscle and to end the day on a positive note and with 92.8% of the gains of the day intact. This positive close for the New York market albeit that it might well indicate that it has come with a sharp reduction in the significant shorts reported for the market as at Tuesday last week, might well be supportive for some buoyancy due for the London market and a steady start for the New York market for early trade today against the prices set on Friday, as follows:

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

MAR 1363 – 3                                               MAR 118.80 + 3.20
MAY 1393 – 1                                               MAY 121.05 + 3.20
JUL 1424 unch                                                 JUL 122.80 + 3.20
SEP 1452 + 1                                                   SEP 124.45 + 3.15
NOV 1474 unch                                              DEC 126.35 + 3.05
JAN 1495 unch                                               MAR 128.30 + 3.00
MAR 1515 unch                                             MAY 129.60 + 3.10
MAY 1537 unch                                               JUL 130.55 + 3.10
JUL 1558 unch                                                 SEP 131.40 + 3.05
SEP 1581 – 3                                                   DEC 132.70 + 2.90