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

Coffee Market Report

14 Apr 2016

The Vietnam customs authorities have reported that the countries coffee exports of mostly robusta coffees for the month of March were a sizeable 3.02 million bags, which is a much higher figure than the traders forecasts for exports of between 2.5 million and 2.67 million bags anticipated ahead of the month. This export performance puts March exports at 52.30% higher than that of the Tet Holiday shortened month of February, and the country’s cumulative coffee exports for the first six months of the present October 2015 to September 2016 coffee year, to 23% higher than the same period in the previous coffee year, at a total of in excess of 13.59 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, the most conservative of estimates pegged these were at a minimum of 5 million bags and with some talking figures as high as 8 million bags. However if one is to show caution and work with the conservative 5 million bags, this would indicate coffee availability for the present coffee year along with the new harvest of approximately 27 million bags, to be at least 32 million bags. This would indicate that once the annual domestic coffee demand is removed, there remains close to 15.50 million bags of mostly robusta coffees available within the country, to fuel exports for the next 6 months of the coffee year.

The question of the availability of carryover robusta coffee stocks that will be held within Vietnam at the time that the new Vietnam crop is due to start in October 2016 is likely to gain momentum in the months to come. There has been some evidence of drier weather over the main growing areas during this next crops development phase, although the extent of dry weather and the effect thereof on the developing new crop that is mostly in receipt of some form of irrigation, is unlikely to be significant. Thus, latest reports and figures that are being bandied about within the interior, of potential losses that are said to be in the double digit percentages are likely at this early stage to be viewed as an attempt at market manipulation and have thus far been largely ignored by the markets.

There is meanwhile sufficient Vietnam robusta coffee in the pipeline to continue to fuel and maintain a steady robusta supply to the consumer markets, which in the Northern Hemisphere are soon heading toward traditionally slower coffee consumption summer months. However, the apparent lower availability to consumer markets from the dry weather affected production out of the Brazil Conilon robusta crop that is currently in harvest, and the prevailing tighter supply out of main robusta competitor and producer Indonesia, may remain a contributory factor toward the overall internal market and relatively positive price resistance within Vietnam.

The July on July contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 53.47 Usc/Lb., while this equates to a 43.26% 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 a nominal 95 bags yesterday; to register these stocks at 1,412,446 bags. The number of bags pending grading to the exchange remained the same; to register these pending grading stocks at 15,916 bags on the day.

It was a mixed but overall positive day on the commodity markets yesterday, where updated trade data and positive export figures for the month of March released by China assisted to boost sentiment. It was however a firmer day for the US Dollar, accompanied by a latter day statement by the Federal Reserve that the U.S. economy has continued to post positive economic indicators in employment, wages and manufacturing data since late February. It was a softer day on the Oil markets yesterday; Sugar continued the lower run of late. Cocoa softer as well as the Coffee markets, Gold and Palladium finished in negative territory. It was however a better day for Cotton, Copper, Orange Juice, Wheat, Corn, Soybean, Silver and Platinum markets which all finished in positive territory. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.415% higher to see this Index registered at 390.41. The day starts with a steady U.S. Dollar at 1.412 to Sterling and 1.125 to the Euro, while North Sea Oil is steady in early trade and is selling at 42.23 per barrel.

The coffee markets started the day on a softer track yesterday, with London Robusta in a steady but lower range for much of the morning to mid afternoon session. The New York Markets opened in a similarly softer trend but with producer sellers withdrawn and the Brazil Real holding steady against the US Dollar in the morning, there was a relatively short lived recovery in New York back into positive territory but met with stronger selling activity to cap the gains and pressure levels back into negative, where alike London trade remained within a narrow range with the heavy activity in both markets lead by speculative and fund moves out of the prompt months in these markets, particularly ahead of first notice day in New York next week. There was a later in the day reaction to the firming US Dollar across commodities which weighed in negatively to see the both markets gap lower, to trigger sell stops on the way, assisted in sentiment by the Brazil Real which slipped back against the US Dollar as the day drew to a close and both markets finished the day close the day lows, to set the close yesterday in both markets in another good volume turnover day, on a softer note, as follows;

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

MAY  1515 – 44                          MAY 121.75 – 2.85
JUL    1546 – 39                          JUL   123.60 – 2.70
SEP    1565 – 35                          SEP   125.35 – 2.60
NOV  1582 – 34                          DEC  127.55 – 2.55
JAN    1600 – 31                         MAR 129.50 – 2.55
MAR  1611 – 32                          MAY 131.05 – 2.50
MAY  1628 – 33                          JUL   132.35 – 2.45
JUL    1649 – 31                          SEP   133.45 – 2.55
SEP    1669 – 31                          DEC 135.05 – 2.60
DEC   1689 – 31                          MAR 136.65 – 2.65