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

Coffee Market Report

08 Apr 2016
The traditionally conservative Brazil Federal Statistics Institute IBGE and with the new coffee crop close to maturity has increased its new crop forecast by 1%, to now forecast a new crop of 50.2 million bags. This new crop they foresee shall be made up by 11 million bags of conilon robusta coffees and 39.2 million bags of arabica coffees.

One might comment that with the IBGE forecasts most usually at least 10% below the reality of the crop by the time post-harvest figures are calculated, that this would indicate reality to the many forecasts within the market, which talk of a new crop in excess of 55 million bags. This report and once adjusted for its discount facto, is at first sight marginally bearish for the market and particularly so for the New York arabica coffee market. However with Brazil having a domestic consumption of between 20 million and 21 million bags and with export market dedicated demand for Brazil coffees of approximately 32 million bags, it does not indicate anything more than a very modest surplus supply.

Meanwhile the new conilon robusta coffee harvest has started, with the new arabica coffee harvest due to start as early as May but with volumes only picking up during June and July. While with carryover stocks after two years of deficit crops and steady liquidation of stocks now mostly depleted, the forward sale price differentials for the scarce bolder bean screen 17 plus arabica coffees remain very positive and are only softer for new crop sales for shipment after August this year.

The new summer rain season for Vietnam is still to the fore and is only likely to start late in this month and many predict perhaps only in the coming month, while in the meantime and as is traditional in Vietnam at this time in the year, there are many farmers talking drought. For the present such reports one would suggest are more market manipulative than realistic in nature, but the reports do assist to encourage farmers and internal market traders to continue to show price resistance and to force exporters to demand premium price differentials for new business.

The July on July contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 52.64 usc/Lb., while this equates to a 43.2% 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 increase by 1,045 bags yesterday; to register these stocks at 1,417,257 bags. There was meanwhile a larger in volume 1,556 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 18,868 bags.

The commodity markets were mixed but with some small recovery for the U.S. dollar assisting dampen spirits within many markets, the trend was softer for the day and with the overall macro commodity index tending to soften for the day. The Natural Gas, London robusta Coffee, Cotton, Corn, Gold and Silver markets had a day of buoyancy, while the Oil, Sugar, Cocoa, New York arabica Coffee, Copper, Orange Juice, Wheat and Soybean markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.19% lower; to see this Index registered at 378.69. The day starts with a relative steady U.S. Dollar which is trading at 1.407 to Sterling and 1.136 to the Euro, while North Sea Oil is showing a degree of buoyancy in early trade and is selling at 38.40 per barrel.

The London market started the day yesterday with an immediate bounce higher and followed by a positive stance being taken within the New York market and with both markets remaining north of par into early afternoon trade, when the New York market started to come under pressure and slipped back into negative territory, while the London market maintained its positive stance. The New York market continued to shed weight as the afternoon progressed and taking as steady downside track for the day and while the London market had lost some of its early gains of the day and briefly dipped back towards par, it remained on positive track for most of the day and through to the close. The London market ended the day on a positive note and with 44.8% of the earlier gains of the day intact, while the New York market ended the day on a soft note and with 87.2% of the earlier losses of the day intact. This rather mixed close and while supportive to a degree for sentiment within the London market does little to inspire, but following the high volume of mostly negative trade experienced by the New York market yesterday, one might expect to see some corrective buying coming into play and to perhaps see the markets set for a near to steady start for the London market and modest buoyancy for the New York market for early trade today, against the prices set yesterday, as follows:

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

MAY 1496 + 26                                      MAY 119.80 – 1.70
JUL 1528 + 26                                           JUL 121.95 – 1.70
SEP 1548 + 23                                           SEP 123.75 – 1.65
NOV 1565 + 21                                        DEC 125.90 – 1.45
JAN 1582 + 20                                        MAR 127.95 – 1.30
MAR 1599 + 18                                      MAY 129.75 – 1.25
MAY 1620 + 16                                        JUL 131.35 – 0.95
JUL 1643 + 16                                          SEP 132.65 – 0.45
SEP 1663 + 16                                         DEC 134.25 – 0.10
DEC 1683 + 16                                       MAR 135.85 + 0.05