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

Coffee Market Report

09 May 2016
The latest Commitment of Traders report from the New York arabica coffee market has seen the Non Commercial Speculative sector of this market decrease their net long position within the market by 762.15% during the week of trade leading up to Tuesday 3rd. May; to switch to and register a net short sold position of 11,964 Lots. This net short sold position which is the equivalent of 3,391,741 bags has most likely been since reduced, following the period of mixed but mostly positive trade, which has since followed.

The Coffee Federation in Colombia have reported that the country’s coffee production for the month of April was 119,000 bags or 12.88% higher than the same month in the previous year, at a total of 1,043,000 bags. This improved performance has contributed to the countries cumulative production for the first seven months of this new October 2015 to September 2016 coffee year to being 1,220,000 bags or 17.08% higher than the same period in the previous coffee year, at a total of 8,363,000 bags.

In terms of exports, the Coffee Federation in Colombia have reported that the country’s coffee exports for the month of April were 21,000 bags or 2.27% lower than the same month in the previous year, at a total of 906,000 bags. This slightly lower performance does nevertheless contribute to the countries cumulative exports for the first seven months of this new October 2015 to September 2016 coffee year to being 782,000 bags or 11.37% higher than the same period in the previous coffee year, at a total of 7,662,000 bags.

These figures so far do not reflect the fears for a dip in production levels out of Colombia due to the excessively dry El Nino weather which was encountered in many of the country’s coffee districts over the past six months, but with the mid-year new Mitaca crop only due to start picking up in volume during this month, there remains the possibility for lower comparative year on year production figures to still come to the fore in the coming months. However it would seem from the April figures that the dry weather has not actually been as damaging as many had been forecasting and that possibly the dip might not be so severe, so as to tighten up consumer market supply of fine washed arabica coffees for the rest of this coffee year.

There has been mixed news in terms of the arabica coffee production out of Indonesia with fine semi washed arabica coffee production from the island of Sumatra seen to have suffered from the dry El Nino weather and to possibly be in excess of 15% lower for this year, but with reasonable rains over the island of Java having assisted towards the potential for a larger new washed arabica coffee crop for the year, with this new crop presently in harvest. This larger new crop out of Java not only influenced by the weather, but also to the recent expansion of planting of arabica coffee by the Javanese farmers.

This mixed news in terms of Indonesian arabica coffee does not however detract from the forecasts for problems with the new robusta coffee crop that is dominated by the production within the island of Sumatra, where the dry weather has most certainly been damaging for the new crop potential. Thus for the present the new robusta coffee crop that has already encountered some delays for the start of the new crop harvest is seen to be a relatively modest crop and in the meantime with tight internal market supply and farmer price resistance, the supply of robusta coffees out of Indonesia remains muted and uncompetitive with the offers coming out a well-supplied Vietnam.

The July on July contracts arbitrage between the London and New York markets broadened on Friday, to register this at 49.70 usc/Lb., while this equates to a 39.92% price discount for the London robusta coffee market. This arbitrage remaining relatively attractive to roasters in comparison to arabica coffee prices, continues to inspire support for the robusta coffee sector of the industry.

The Certified washed Arabica coffee stocks held against the New York exchange were seen to decrease by 119 bags on Friday; to register these stocks at 1,377,193 bags. There was meanwhile a larger in volume 760 bags decline to the number of bags pending grading for this exchange; to register these pending grading stocks at 5,695 bags.

The commodity markets had a generally positive day on Friday and with the overall macro commodity index taking a positive track for the day, but it might be seen to be only a modest correction rather than a change in the nature of the presently lacklustre markets. The Oil, Natural Gas, Coffee, Copper, Wheat, Corn, Soybean, Gold and Silver markets had a day of buoyancy, while the Sugar, Cocoa 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 0.68% higher; to see this Index registered at 405.15. The day starts with a steady U.S. Dollar which is trading at 1.444 to Sterling and 1.140 to the Euro, while North Sea Oil is showing some degree of buoyancy in early trade and is selling at 44.80 per barrel.

The London and New York markets started the day on Friday with modest follow through buoyancy and with both markets taking a positive track into the afternoon trade, which seemingly assisted to build confidence and with producer selling pressure muted, assisted for the markets to add more value as the day progressed. The London market continued to end the day on a positive note and with 82.1% of the earlier gains of the day intact, while the New York market ended the day on a very positive note and with 90.9% of the earlier gains of the day intact. This close contributes to the charts taking a positive look and one might expect that it might inspire a follow through steady start for early trade today against the prices set on Friday, as follows:

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

MAY 1619 + 35                                      MAY 123.45 + 2.55
JUL 1649 + 32                                           JUL 124.50 + 3.00
SEP 1658 + 32                                           SEP 126.25 + 3.00
NOV 1668 + 30                                        DEC 128.65 + 2.90
JAN 1678 + 27                                        MAR 131.20 + 2.90
MAR 1687 + 27                                      MAY 132.75 + 2.90
MAY 1698 + 27                                        JUL 134.10 + 2.95
JUL 1709 + 27                                           SEP 135.25 + 3.00
SEP 1723 + 27                                          DEC 137.05 + 2.95
DEC 1742 + 27                                        MAR 138.80 + 2.90