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

Coffee Market Report

15 Apr 2016
The July on July contracts arbitrage between the London and New York markets widened yesterday, to register this at 54.70 Usc/Lb., while this equates to a 43.72% 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 792 bags yesterday; to register these stocks at 1,411,684 bags. The number of bags pending grading to the exchange saw a larger in volume 5,245 bags decrease; to register these pending grading stocks at 10,671 bags on the day.

These Certified washed Arabica coffee stocks that are held against the New York exchange, have registered a remarkable decline over the past twelve months. Once one sets aside the fact that there are daily additions or subtractions from these certified stocks, the net result today is that there is a difference of 897,258 bags than when compared to the same date in 2015, which reported these stocks at a more significant 2,308,942 bags on the same day last year.

The relatively modest New York certified stocks being held against the New York exchange has thus far had little influence upon market sentiment. The gradual depletion of coffee stocks being held against the exchange would appear to be a combination of factors, not as much related to any nearby tightness in the supply of washed arabica coffee, but rather to the reality of producer price resistance against prevailing market levels. This resistance negates the likelihood of any significant volume of new coffee to come to the exchange from producers, whereas the existing certified coffees are proving to be attractive to more flexible price sensitive consumer roasters, against alternative and relatively firm export price differential expectations at origin. These certified stocks are made up by a majority of Colombia, Honduras and Peru coffees, closely followed by Mexico, to a total 1,112,643 bags, with a further 56,449 bags of predominantly Nicaragua and nominal quantities of other Central American producers and the balance 17.18% shared between African producers Burundi, Rwanda, Uganda, nominally Tanzania and a 1.8% share India coffee.

It was a mixed day on the commodity markets yesterday, ahead of meetings of major oil producers due to be held this weekend, while the US Dollar registered another firm day against other currencies. The oil markets had a mixed performance overall. It was a softer day for Cotton, Orange Juice, Wheat, Soybean, Palladium markets, a steady day for Corn and Copper and a more positive finish in Gold, Silver, and Platinum, Sugar, Coffee and Cocoa markets. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.46% lower to see this Index registered at 388.61. The day starts with a steady U.S. Dollar at 1.414 to Sterling and 1.125 to the Euro, while North Sea Oil is steady in early trade and is selling at 42.59 per barrel.

The coffee markets opened on a softer note yesterday, with a degree of recovery registered in the New York market during the morning session. The seemingly positive sentiment seen in New York may have assisted to provide some motivation to the London market which with underlying speculative buyer support returning to the floor and in the general absence of producer seller participation, similarly set a more buoyant track for the day. The New York market continued to build upon gains during the afternoon session, although the overall volume of trade turned out to be more modest overall when compared to the past few hefty volume sessions on the front months, this market took a latter day softer turn to set the market close in positive territory but off the days’ high. It was a relatively choppy afternoon session for the London robusta market as activity waned toward the latter half of the day, to set a close near to the middle of the days’ trading range. The Brazil Real posted a steady day yesterday, but lost some ground against the US Dollar as the day drew to a close, and both markets finished the day in positive territory, and a close near to the middle of the days’ range in both markets, as follows;

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

MAY   1523 + 8                          MAY 123.15 + 1.40
JUL     1552 + 6                          JUL   125.10 + 1.50
SEP     1570 + 5                          SEP   126.85 + 1.50
NOV   1586 + 4                          DEC   129.05 + 1.50
JAN     1602 + 2                          MAR 131.10 + 1.60
MAR   1613 + 2                          MAY 132.70 + 1.65
MAY   1632 + 4                          JUL   134.05 + 1.70
JUL     1651 + 2                          SEP    135.30 + 1.85
SEP     1671 + 2                          DEC  136.95 + 1.90
DEC    1691 + 2                          MAR 138.55 + 1.90