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


I. & M. Smith (Pty) Ltd.

Coffee Market Report

30 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 increase their net long position within the market by 99.25% over the week of trade leading up to Tuesday 22nd. March; to register a net long position of 26,040 Lots. Meanwhile the longer term in nature Index Fund sector of this market decreased their net long position within the market by 0.16%, to register a net long position of 33,014 Lots on the day.

Over the same week the Non Commercial Speculative sector of this market increased their net long position within the market by 243.13%, to register a net long position of 19,523 Lots. This net long position which is the equivalent of 5,534,684 bags has most likely been significantly decreased, over the period of overall negative trade that has since followed and likewise, that of the Managed Money fund sector of the market.

Following the flurry of excitement that resulted in a significant reversal of the fortunes for the New York arabica coffee market over the past two weeks and ahead of the Easter break that had been somewhat justified by the focus on the fundamentals of only a modest surplus new Brazil crop this year and the potential for the El Nino to have reduced the potential of the forthcoming new Colombian Mitaca crop, the wind has fallen out of the sails of the market since mid-last week. This has perhaps been assisted by the evidence early last week as to how far long the Managed Money Funds and the Speculative sectors of the market had bought into the New York market, which has inspired the combination of profit taking and producer price fixation selling activity.

However this correction aside one must keep in mind that with Brazil coffee stocks now mostly liquidated and a new crop on the horizon that many question shall be much better than a near to par 55 million bags, while there is foreseen to be reality to the forecasts for a smaller new Mitaca crop due from Colombia, that there is reason to believe in sufficient but tighter arabica coffee supply for the rest of the year. This one would suggest shall be somewhat supportive for the longer term fortunes of the New York market, at such time as the prevailing negative correction has been absorbed. Confidence to perhaps be further supported to a degree, by the steadily declining and already modest certified coffee stocks of the exchange.

On the robusta coffee front and somewhat supportive for the related London market there remains no doubt that there shall be little contribution towards consumer market supply from the drought affected and smaller Brazil conilon robusta coffee crop, as there shall be a more modest new robusta coffee crop from Indonesia this year. Thus while these factors in terms of the record carryover robusta coffee stocks within Vietnam are unlikely to result in a shortage of robusta coffees for the foreseeable future for the consumer markets, this scenario shall see much of these stocks having been liquidated by the start of the next Vietnam crop in October this year. This next Vietnam crop many within Vietnam are speculating shall suffer from the prevailing dry conditions within the country and the potential for a late start to the new summer rain season, which could well bring to the fore some degree of cautious speculative support for the longer term fortunes of the London market.

The May on May contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 59.59 usc/Lb., while this equates to a 46.76% 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 1,599 bags yesterday; to register these stocks at 1,428,449 bags. There was meanwhile a smaller in volume 1,093 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 35,022 bags.

The commodity markets were only selectively buoyant in line with the weaker nature of the U.S. dollar yesterday, to contribute to overall macro commodity index only showing a degree of hesitant buoyancy. The Natural Gas, Cocoa, London robusta Coffee, Orange Juice, Wheat, Corn, Soybean, Gold and Silver markets had a day of buoyancy, while the Oil, Sugar, New York arabica Coffee, Cotton and Copper markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.16% higher; to see this Index registered at 387.90. The day starts with a near to steady U.S. Dollar trading at 1.438 to Sterling and 1.129 to the Euro, while North Sea Oil is steady in early trade and is selling at 37.35 per barrel.

The London market returned from the extended Easter long weekend holiday yesterday to start trading on a near to steady note, but with the New York market taking a softer track. The New York market did however post a recovery into the early afternoon trade and with the London market showing a degree of buoyancy, but the recovery within the New York market could not be sustained and with the market coming under significant negative pressure as the afternoon progressed, while the London market continued to show resilience and to show modest buoyancy. The New York market did however come off the lows later in the afternoon and with the London market taking a steady modestly positive track, to take the markets through to a mixed close for the day. The London market ended the day on a modestly positive note and with 41.7% of the earlier gains of the day intact, while the New York market ended the day on a soft note but having recovered 54.2% of the earlier losses of the day by the close. This close is does not provide much in the way of technical support for the market but with the weaker U.S. dollar in play and producers somewhat reluctant sellers, one might expect to see a hesitant steady start for early trade today against the prices set yesterday, as follows:


MAR 1463 + 5
MAY 1496 + 5                                       MAY 127.45 – 1.10
JUL 1526 + 4                                            JUL 129.45 – 1.10
SEP 1550 + 4                                            SEP 131.15 – 1.15
NOV 1567 + 2                                          DEC 132.75 – 1.25
JAN 1583 + 1                                          MAR 134.45 – 1.25
MAR 1603 – 1                                         MAY 135.90 – 1.20
MAY 1625 – 1                                           JUL 136.65 – 1.15
JUL 1649 – 1                                             SEP 137.20 – 1.10
SEP 1672 – 1                                            DEC 138.30 – 1.05