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

Coffee Market Report

27 Jul 2015
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 0.82% during the week of trade leading up to Tuesday 21st. July; to register a net short sold position of 23,534 Lots. This net short sold position which is the equivalent of 6,671,785 bags has most likely been slightly increased again, over the period of mixed but overall marginally negative trade which has since followed.

A Reuters Poll taken from a host of leading coffee market players came to the fore on Friday, with the consensus being that the London robusta coffee market shall improve marginally by the end of the year to trade at approximately US$ 1,815.00 per Metric ton, which would nevertheless be 5% lower for the year. This poll in terms of robusta coffee production came to the conclusion that the new Vietnam crop of mostly robusta coffees that is due to start being harvested in October shall be 28.8 million bags.

Similarly the same Reuters Poll came to the consensus that the New York market shall end the year marginally higher than the present prices, with the view that it shall be trading at 143.00 usc/Lb. This level would while improved from the prevailing trading range, still be 14% lower for the year. This poll in terms of the dominant Brazil coffee production which is now with the new crop peaking and with the expectations of an improved arabica coffee component from this crop, estimated that the new Brazil crop shall be 49 million bags.

In terms of these crop forecasts within the poll, there is of course no mention of the existence of significant internal market farmer and internal trader past crop robusta coffee stocks, which might well add an additional 4 to 5 million bags of carryover robusta coffee stocks to the approximate 27.5 million bags of robusta coffees due within an overall new coffee crop of 28.8 million bags. Thus with good robusta coffee supply due from all other leading robusta coffee producers with the exception of the smaller conilon robusta coffee crop from Brazil this year, the view has to be that there is no medium to longer term threat to world robusta coffee supply for the present.

The Central Bank of Central African States have forecast that the Cameroun shall for the present coffee year which runs from October 2014 to September 2015 for their relatively small arabica coffee crop and from December 2014 to November 2015 for their dominant robusta coffee crop be 133,333 bags or 25% higher than the previous coffee year, at a total of 666,667 bags. This increase in production they note is being somewhat inspired by the investment by Nestle, into a domestic soluble coffee processing plant.

The arbitrage between the markets broadened on Friday to register this at 47.41 usc/Lb., while this equates to a 38.78% price discount for the London robusta coffee market. This arbitrage remaining relatively attractive to roasters in comparison to arabica coffee prices, but is perhaps due to widen further in time and when Vietnam stocks start to impact upon the fortunes of the London market.

The Certified washed Arabica coffee stocks held against the New York exchange were seen to decrease by 3,700 bags on Friday; to register these stocks at 2,121,031 bags. There was meanwhile no change to the modest number of bags pending grading for this exchange; to register these pending grading stocks at 320 bags.

The Certified Robusta coffee stocks held against the London market were seen to increase by 148,667 bags over the two weeks of trade leading up to Monday 20th. July; to register these stocks at 3,341,167 bags on the day. These stocks tending to post only modest growth for the present, as they lack the input of the potentially large volumes of internal market stocks from Vietnam, which continue to be retained as a reaction by the international trade to the continued price resistance that forces export prices to remain significantly higher than tenderable parity.

The commodity markets ended last week under pressure, as did the equity markets and seemingly with the slower growth figures out of China, business confidence in general. The New York arabica Coffee market nevertheless showed some degree of buoyancy, while the Oil, Natural Gas, Sugar, Cocoa, London robusta Coffee, Cotton, Copper, Orange Juice, Wheat, Corn, Soybean, Gold and Silver markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 1.01% lower; to see this Index registered at 403.15. The day starts with the U.S. Dollar tending softer and trading at 1.553 to Sterling and 1.103 to the Euro, while North Sea Oil is steady in early trade and is selling at 54.40 per barrel.

The London and New York markets opened the day on Friday on a hesitantly steady note and with some early buoyancy within an environment of thin trade, but with some negative pressure coming into play as the markets moved into the afternoon trade. The markets did however recover as the afternoon progressed and with the New York market attracting some good support, to move into higher territory while the London market retained more modest buoyancy. The New York market and presumably with the negative nature of the overall macro commodity index playing a part started to attract selling at the highs and to move back into more modest positive territory, while he London market slipped back into negative territory. The London market continued to end the day on a softer note and with 73.3% of the losses of the day intact, while the New York market ended the day on a modestly positive note and with 22.9% of the earlier gains of the day intact. This close does not add too much towards confidence but perhaps with the U.S. dollar marginally softer, one might see some degree of stability for early thin trade today against the prices set on Friday, as follows:

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

JUL 1789 – 11
SEP 1650 – 11                             SEP    122.25 + 0.70
NOV 1666 – 11                           DEC   125.65 + 0.60
JAN 1683 – 11                            MAR  129.25 + 0.55
MAR 1703 – 11                          MAY  131.40 + 0.50
MAY 1725 – 11                            JUL  133.45 + 0.40
JUL 1747 – 11                              SEP  135.55 + 0.45
SEP 1768 – 11                             DEC  138.55 + 0.45
NOV 1790 – 11                           MAR 141.45 + 0.45
JAN 1812 – 11                            MAY 143.25 + 0.55