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

Coffee Market Report

15 Mar 2016
The latest Commitment of Traders report from the New York arabica coffee market has seen the shorter term in nature Managed Money fund sector of this market decrease their net short sold position within the market by 71.65% over the week of trade leading up to Tuesday 8th. March; to register a net short sold position of 5,490 Lots. Meanwhile the longer term in nature Index Fund sector of this market decreased their net long position within the market by 0.54%, to register a net long position of 32,538 Lots on the day.

Over the same week the Non Commercial Speculative sector of this market decreased their net short sold position within the market by 49.26%, to register a net short sold position of 13,711 Lots. This net short sold position which is the equivalent of 3,887,008 bags has most likely been significantly decreased again, over the period of short covering buying that has since followed and likewise, that of the Managed Money fund sector of the market.

The latest Commitment of Traders report from the London robusta coffee market has seen the Speculative sector of this market increase their net short sold position within the market by 3.22% over the week of trade leading up to Tuesday 8th. March; to register a net short sold position of 28,400 Lots on the day. This net short sold position that is the equivalent of 4,733,333 bags has most likely been slightly reduced, over the period of mixed but overall positive trade, which has since followed.

The Vietnam customs authorities have reported that the countries coffee exports of mostly robusta coffees for the Tet New Year shortened holiday month of February were 1,983 million bags, which was higher than the trader’s forecasts for exports of between 1.5 million and 1.67 million bags. This export performance they report has resulted in the countries cumulative coffee exports for the first five months of the present October 2015 to September 2016 coffee year, to have been 20.2% higher than the same period in the previous coffee year, at a total of in excess of 10.57 million bags.

There were many estimates of the carryover coffee stocks into the new Vietnam crop that was harvested over the last quarter of last year, but even the most conservative of estimates pegged these at a minimum of 5 million bags and with many talking as high as 8 million bags. However if one is to show caution and to with the conservative 5 million bags factor, one would estimate coffee availability for the present coffee year along with the new harvest of approximately 27 million bags, to be at least 32 million bags and even if one is to deduct domestic coffee demand an availability for the consumer markets of approximately 29.5 million bags.

This would further indicate that with the exports for the first five months of the coffee year aside, that there remains close to 19 million bags of mostly robusta coffees available within the country, to fuel exports for the last 7 months of the coffee year. The country would traditionally though look to have carryover stocks of at least 3 million bags at the start of October and thus reduce the seven months availability to approximately 16 million bags, which remains a significant number and one that guarantees steady robusta coffee supply to the consumer markets out of Vietnam for the rest of the coffee year. But not such a surplus with the lesser competition this coffee year from Brazil and Indonesia, that is unlikely to impact upon the prevailing internal market price resistance within Vietnam, which dictates relatively positive asking export differentials from the countries exporters.

The May on May contracts arbitrage between the London and New York markets broadened yesterday, to register this at 61.97 usc/Lb., while this equates to a 48.72% 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 9,307 bags yesterday; to register these stocks at 1,462,429 bags. There was meanwhile a smaller in volume 4,250 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 30,215 bags.

The commodity markets were mixed but encountered a reversal in the fortunes for the influential Oil markets yesterday, in reaction to the news that Iran would not be prepared to join any international restriction in supply programs, but many markets nevertheless had a day of buoyancy and the overall macro commodity index retained its new found muscle for the day. The Sugar, Cocoa, Coffee, Cotton, Orange Juice, Wheat and Corn markets had a day of buoyancy and the Soybean market was steady for the day, while the Oil, Natural Gas, Copper, Gold and Silver markets had as softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.26% higher; to see this Index registered at 386.66. The day starts with the U.S. Dollar steady and trading at 1.426 to Sterling and 1.110 to the Euro, while North Sea Oil is near to steady in early trade and is selling at 38.05 per barrel.

The London market started the day yesterday with buoyancy and the New York market on a near to steady note and with the markets maintaining this stance into the afternoon trade, but with the New York market soon gaining some support and joining the London market in positive territory as the afternoon progressed and having shrugged off a brief negative dip for both markets, they took a mostly positive track for the rest of the day’s trade. The London market continued to end the day on a positive note and with 64.7% of the earlier gains of the day intact, while the New York market ended the day on a likewise positive note and with 73.7% of the earlier gains of the day intact. This overall positive close is perhaps constructive for sentiment and is likely to assist to encourage a near to steady start for early trade today against the prices set yesterday, as follows:

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

MAR 1411 + 9                                          MAR 125.60 + 1.20
MAY 1438 + 11                                        MAY 127.20 + 1.40
JUL 1465 + 11                                             JUL 128.95 + 1.40
SEP 1489 + 10                                             SEP 130.55 + 1.35
NOV 1509 + 11                                           DEC 132.30 + 1.25
JAN 1529 + 12                                           MAR 134.10 + 1.25
MAR 1550 + 12                                         MAY 135.40 + 1.35
MAY 1572 + 12                                           JUL 136.25 + 1.30
JUL 1593 + 12                                              SEP 137.05 + 1.30
SEP 1616 + 12                                             DEC 138.40 + 1.30