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

Coffee Market Report

28 Apr 2016

The Coffee Roasting Industry Association of Brazil ABIC have announced that they forecast the new Brazil coffee crop to be 53 million bags, while domestic coffee consumption will rise this year to 21.3 million bags. This would seem in terms of the expectations that dedicated consumer market demand for Brazil coffees is approximately 32 to 33 million bags, something of a bullish statement. As it indicates that there would not be any surplus and with Brazil stocks seen to be mostly depleted and would provide nothing in the way of a safety net, should there be any problems for the follow on 2017 Brazil crop.

However the report apparently had little effect upon sentiment, as it came to the table at the same time as the coffee markets encountered another reversal. One might suspect that with the predicted sharp increase in the domestic consumption figure which has recently been softening, that it has made many suspicious of the relatively modest new crop forecast and thus the report was side-lined as a factor of influence for the speculative and fund sectors of the market.

The National Export Centre in Nicaragua has reported that the country’s coffee exports for the month of March fell by 10.70% against the same month in the previous year, at a total of 224,601 bags. This performance has contributed to the countries cumulative exports for the first six months of the present October 2015 to September 2016 coffee year to being 9.30% lower than the same period in the previous coffee year, at a total of 639,790 bags.

The Vietnam customs authorities and with most of the April export registrations in hand, have forecasted that the April coffee exports shall be 54.7% higher than the same month last year, to total 2.67 million bags. This figure which exceeds the earlier trade and industry forecasts, would see the country’s exports for the first seven months of the present October 2015 to September 2016 coffee year to be 27.4% higher than the same period in the previous coffee year, at a total of 16.27 million bags.

One might note that with even the most conservative of carryover stocks that were estimated and added to the new crop, that this would indicate that Vietnam would still have stocks of at least 15 million bags of mostly robusta coffees, to take the country through to the next crop. Thus more than sufficient stocks to maintain steady high volume exports for the remaining five months of this present coffee year and including sufficient stocks to maintain good volume exports for the first two months of the next coffee year, while the next new crop is still in harvest.

The July on July contracts arbitrage between the London and New York markets narrowed yesterday, to register at 50.15 usc/Lb., while this equates to a 41.27% 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 5,475 bags yesterday; to register these stocks at 1,389,091 bags. The number of bags pending grading to the exchange was unchanged on the day; to register these pending grading stocks at 2,889 bags.

The commodity markets were steady yesterday, the focus on the U.S. Reserve Bank announcements, which brought with it seemingly no short term change to the interest rate policy, citing amongst others positive improvements to the labour market. It was a steady day for the Oil markets, Cotton, Orange Juice, Gold, Silver, Platinum and Palladium markets and a softer day for Sugar, Cocoa and Coffee, Wheat, Corn and Soybean markets. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.1258% higher; to see this Index registered at 402.165. The day starts with a relative steady U.S. Dollar which is trading at 1.457 to Sterling and 1.134 to the Euro, while North Sea Oil is showing a degree of buoyancy in early trade and is selling at 44.91 per barrel.

The London Coffee market started the day yesterday in marginally lower territory, although New York took a more positive track at the outset although this was relatively short lived. The London market managed to break into positive territory toward midsession but the general macro ahead of the US policy meetings seemed to bring in an cautious sentiment to these markets and a bout of mostly speculative long liquidation took hold in New York, to see this market trigger stops along the way and finish on a softer note near to the days' lows, after a good volume session. The London robusta market took a similarly negative track in the afternoon session that was met with underlying buyer support along the way and a finish after a fair volume day, just above the days’ lows in this market, to set the close yesterday after a softer day and in negative territory, as follows:

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

MAY   1535 - 21                          MAY 121.05 – 4.20
JUL     1573 - 16                          JUL   121.50 – 4.25
SEP     1595 - 16                          SEP   123.30 – 4.10
NOV   1614 - 16                          DEC  125.65 – 4.00
JAN    1631 - 17                          MAR 128.05 – 3.90
MAR  1645 - 16                          MAY 129.50 – 3.95
MAY  1664 - 16                          JUL 130.85 – 3.90
JUL    1682 - 16                          SEP 132.00 – 3.95
SEP    1700 - 16                          DEC 133.80 – 4.00
DEC   1720 - 16                          MAR 135.50 – 4.05