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


I. & M. Smith (Pty) Ltd.

Coffee Market Report

27 Apr 2016
The prevailing South East Asian drought that has come with the waning El Nino over the past months has had its effect upon prevailing high temperatures within the main central coffee districts of Vietnam and with the subject of drought very much to the fore, within the local press in Vietnam. This with the May to October summer rain season to the fore and some degree of uncertainty as to how good this rain season might be, continues to assist to harden the attitude of Vietnamese farmers and to influence their continued price resistance towards the counties coffee millers and exporters, which is maintaining the positive price differentials that exporters are being forced to demand from new robusta coffee business.

These positive prices with limited competition for Vietnamese robusta coffees from the relatively tight supply out of Indonesia and with little in the way of competition from the smaller new Brazil conilon robusta crop, is forcing the consumer market industries to readily pay up for new crop Vietnamese coffees. Thus one can foresee that with the farmers and internal market traders in Vietnam still holding significant stocks of new crop robusta coffees that the relatively positive nature of physical robusta coffee sales and volumes shall continue through to the new crop at the end of the year, with the question now being what shall be the impact on weather upon the prospects of the next October to December new Vietnam crop.

The question does remain on the prospects for this next Vietnam robusta coffee crop and to a lesser degree the highland Vietnam arabica coffee crop, which while dwarfed by the countries robusta coffee crop of close to 26 million bags per annum is nevertheless a significant crop of close to 1.4 million bags of arabica coffee per annum. In this respect and with the rain season soon to start, there has already been some rain showers recorded within the north of the country and in the past week within the all-important for coffee central highlands of Vietnam. Thus so far and despite the dramatic nature of the press reports in terms of the drought talk, there would appear to be a good chance that the new rain season might after all be supportive for yet another good coffee crop for the end of the year and to fuel continued steady supply from Vietnam for the next October 2016 to September 2017 coffee year.

Meanwhile with most of the month of April export registrations in hand and despite the average price of coffee exports from Vietnam for the first four month of this year having been influenced by the soft nature of the related prices of the London terminal market to be 18.3% lower than the same period last year, the value of coffee exports from Vietnam for these first four months of this year are 14.6% higher than the same period last year, at a total of 1.16 billion U.S. dollars. This rise in value being related to the 44.6% increase in the volume of coffee exported over the period, while the coffee exports for these four months is approximately 11.6% of total agricultural exports.

The July on July contracts arbitrage between the London and New York markets broadened yesterday, to register this at 53.67 usc/Lb., while this equates to a 42.68% 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 3,139 bags yesterday; to register these stocks at 1,394,566 bags. There was meanwhile smaller in volume 550 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 2,889 bags.

The Certified Robusta coffee stocks held against the London exchange were seen to decrease by 0.87% during the week leading up to Monday 25th. April, to see these stocks registered at 2,776,500 bags. These stocks with the prices for robusta coffee exports worldwide remaining positive to tenderable parity, are likely to continue to steadily decrease for the foreseeable future.

The commodity markets were generally buoyed by the softer nature of the U.S. dollar yesterday and with the overall macro commodity index maintaining its buoyancy, to further buoy spirits within many markets. The Oil, Sugar, Cocoa, Coffee, Wheat, Corn, Soybean, Gold and Silver markets had a day of buoyancy, while the Natural Gas, Cotton, Copper and Orange Juice markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.81% higher; to see this Index registered at 401.66. The day starts with a relative steady U.S. Dollar which is trading at 1.457 to Sterling and 1.130 to the Euro, while North Sea Oil is showing a degree of buoyancy in early trade and is selling at 44.50 per barrel.

The London market started the day yesterday with a degree of buoyancy and followed by similar buoyancy for the New York market, with both markets maintaining this positive stance into the afternoon trade. The positive nature of the macro commodity index further assisted to inspire a degree of confidence and with both markets having a positive day, through to the close. The London market continued to end the day on a positive note and with 94.7% of the gains of the day intact, while the New York market ended the day on a similarly positive note and with 69.8% of the earlier gains of the day intact. This close can be seen to be constructive for market sentiment and one might expect to see a degree of buoyancy due for early trade today against the prices set yesterday, as follows:


MAY 1556 + 21                                    MAY 125.25 + 2.15
JUL 1589 + 18                                         JUL 125.75 + 2.20
SEP 1611 + 20                                         SEP 127.40 + 2.10
NOV 1630 + 18                                      DEC 129.65 + 2.15
JAN 1648 + 18                                      MAR 131.95 + 2.15
MAR 1661 + 19                                    MAY 133.45 + 2.20
MAY 1680 + 19                                      JUL 134.75 + 2.15
JUL 1698 + 19                                        SEP 135.95 + 2.15
SEP 1716 + 19                                       DEC 137.80 + 2.20
DEC 1736 + 19                                     MAR 139.55 + 2.40