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


I. & M. Smith (Pty) Ltd.

Coffee Market Report

23 Mar 2016
The recent buoyancy that has come forth for the reference prices of the London robusta coffee market has been assisting Vietnamese exporters to pay up for new robusta coffee stocks from within the internal market in Vietnam, but the rise in the international coffee market prices has not yet countered the prevailing price resistance being shown on the part of the farmers and internal market traders within Vietnam. Thus while it has assisted to fuel steady internal market trade, the asking price differentials for new robusta coffee sales out of Vietnam remain positive.

Fortunately for the Vietnamese farmers and internal traders still holding large volumes of new crop coffee stocks the drought affected smaller new Brazil conilon robusta coffee crop that is starting to be harvested is significantly smaller this year and with a strong domestic market demand for these coffees, the export potential from this new crop is limited for the coming year and by nature provides little completion for the Vietnamese robusta coffees. It is likewise the case with Indonesia with their new robusta coffee crop due to be smaller as a result of the El Nino inspired dry conditions over the past five months, which is likewise providing limited completion for the Vietnamese robusta coffees.

Thus for the present the consumer markets are fortunate that Vietnam had record carry over robusta coffee stocks in hand into their new harvest, but with the potential lower volumes of supply out of Brazil and Indonesia these stocks shall be needed and one would expect that by the time of the next harvest shall be partially liquidated. This brings into question the longer term fortunes for Vietnam and their next crop and with many within Vietnam already speculating that the prevailing dry weather might impact negatively upon the fortunes for this next crop, but it is early days as of yet and with the main summer rain season still four to five weeks to the fore and prevailing El Nino now tapering off, it is not really certain that there should be any problem with the next Vietnam crop.

The physical coffee market is presently lacklustre in nature, with most of the main consumer market players and likewise producers in Latin America and Africa already winding down for the forthcoming Easter long weekend break. This shall be a more modest holiday in the U.S.A. which shall only be closed for the Good Friday holiday and a regular long weekend, but will be an extended holiday for most of the Europeans who shall also celebrate the Easter Monday and an extended long weekend and with many taking the opportunity to extend this holiday. Thus in terms of the coffee terminal markets and while both shall be closed on Friday, the New York market can be expected to have a slow day on Monday, while it trades solo for the day.

The May on May contracts arbitrage between the London and New York markets broadened yesterday, to register this at 65.97 usc/Lb., while this equates to a 48.99% 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 6,682 bags yesterday; to register these stocks at 1,434,541 bags. There was meanwhile a smaller in volume 1,640 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 36,059 bags.

The commodity markets showed little excitement yesterday but were mostly taking a positive track for the day and with the overall macro commodity index reflecting this, as it likewise had a day of modest buoyancy. The Brent Oil, Natural Gas, Sugar, Coffee, Cotton, Orange Juice, Wheat, Soybean, Gold and Silver markets had a positive day and the Corn market was steady for the day, while the U.S. Oil, Cocoa and Copper markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.89% higher; to see this Index registered at 394.69. The day starts with a steady U.S. Dollar trading at 1.419 to Sterling and 1.121 to the Euro, while North Sea Oil is near to steady in early trade and is selling at 40.15 per barrel.

The London and New York markets opened the day yesterday with perhaps one would comment to have been unexpected buoyancy, following the previous day’s softer track. This assisted to inspire confidence within the markets and with producers stepping back and awaiting new highs to limit selling volumes above the markets, both markets maintained their buoyancy into the afternoon trade and setting something of a base for the positive nature of the follow on trade and with the funds and speculative sectors of the New York market most certainly extending their long positions within this market. Both markets continued on their positive track for the day and with the markets lacking much in the way of negative pressure, moving towards a positive end for the day. The London market ended the day on a positive note and near the highs with 95.3% of the earlier gains of the day intact, while the New York market ended the day on a likewise positive note and with 92.5% of the earlier gains of the day intact. This very much positive end to the day and with the charts having a positive influence does much to inspire and one might expect to see a follow through steady start for early trade today against the prices set yesterday, as follows:


MAR 1479 + 41
MAY 1514 + 41                                     MAY 134.65 + 3.10
JUL 1542 + 41                                          JUL 136.50 + 3.15
SEP 1566 + 40                                          SEP 138.15 + 3.20
NOV 1586 + 40                                       DEC 139.65 + 3.20
JAN 1605 + 41                                       MAR 141.10 + 3.30
MAR 1627 + 42                                     MAY 142.30 + 3.40
MAY 1649 + 42                                       JUL 143.05 + 3.55
JUL 1673 + 42                                         SEP 143.55 + 3.60
SEP 1696 + 42                                        DEC 144.85 + 3.45