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

Coffee Market Report

17 May 2016
The latest Commitment of Traders report from the New York arabica coffee market has seen the shorter term in nature Managed Money fund sector of this market increase their net short sold position within the market by 148.49% over the week of trade leading up to Tuesday 10th. May; to move into a net long position and register a net long position of 3,118 Lots. Meanwhile the longer term in nature Index Fund sector of this market increased their net long position within the market by 2.13%, to register a net long position of 33,273 Lots on the day.

Over the same week the Non Commercial Speculative sector of this market decreased their net short sold position within the market by 77.08%, to register a short sold position of 2,723 Lots. This net short sold position which is the equivalent of 771,958 bags has most likely been since reduced over the period of mixed but overall more positive trade which has since followed and moved back into a net long position, and likewise the Managed Money Fund sector to have extended its net long position within this market.

The latest Commitment of Traders report from the London robusta coffee market has seen the Speculative Non Commercial sector of this market decrease their net short sold position within this market by 922.81% during the week of trade leading up to Tuesday 10th. May, to move into and register a long position of 9,413 Lots. This net long position which is the equivalent of 1,568,833 bags has most likely to be steady to perhaps even marginally extended, following the period of mixed but mostly positive trade that has since followed.

The Green Coffee Association of the U.S.A. have announced that the countries port warehouse stocks increased by 5,979 bags or 0.1% during the month of April, to register these stocks at 6,023,001 bags at the end of the month. These stocks do not of course include the in transit bulk container coffees or the onsite roaster inventories, which with an approximate combined U.S.A. and Canadian weekly consumption that is fed by these stocks of 560,000 bags per week, would conservatively have been at least 1.1 million bags.

Therefore if one is to consider the additional unreported stocks and look to end April stocks in North America of at the very least 7.1 million bags, it would have equated to something in the order of 13 weeks of roasting activity. This number remains a safe reserve, in terms of the steady flow of new crop coffees from Colombia, Central America and Vietnam that are already coming to the market and soon to be followed, by the new crop coffees from Brazil.

The International Coffee Organisation have estimated that with steady consumption growth of approximately 2% per annum, that the global coffee consumption is presently standing at 152,149,000 gags per annum. This figure made up from an estimated producer country consumption of 47,292,000 bags and consumer country consumption of 104,857,000 bags. These global consumption figures might perhaps be ambitious by a couple of million bags but with global coffee supply for the coming October 2016 to September 2017 coffee year and post the larger new Brazil from this year only looking to be around 153 million bags one might question any reasons to remain bearish for the longer term market.

Especially so as with the Brazilian stocks having been much depleted over the past couple of years and their new crop only expected to provide a very modest surplus and with a need for Brazil to rebuild stocks, one cannot foresee any longer term reason for selling aggression on the part of the producers. Rather with the threat of a weather damaging La Nina phenomenon becoming more of a probability for the end of the year, one might think that there actually is some merit in looking towards the growing possibility for a firmer coffee market for the second half of the year.

The July on July contracts arbitrage between the London and New York markets broadened yesterday, to register this at 57.12 usc/Lb., while this equates to a 42.75% 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 23 bags yesterday; to register these stocks at 1,369,854 bags. There was meanwhile a similar in volume 36 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 3,184 bags.

The commodity markets were mixed yesterday, but with the Oil and New York arabica coffee markets to the fore, the overall macro commodity index took a positive track for the day. The Oil, Sugar, Coffee, Cotton and Copper markets had a positive day’s trade and the Corn, Gold and Silver markets were steady, while the Natural Gas, Cocoa, Orange Juice, Wheat and Soybean markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.36% higher; to see this Index registered at 410.47. The day starts with a steady U.S. Dollar which is trading at 1.449 to Sterling and 1.131 to the Euro, while North Sea Oil is showing a degree of buoyancy in early trade and is selling at 48.90 per barrel.

The London market started the day with modest buoyancy yesterday, while the New York market started the day on a near to steady note. However the New York market lost a little weight into the afternoon trade and followed by the London market, which fell back to below par and with the markets taking a sideways track marginally south of par before bouncing back into positive territory. The New York market from thereon and with buy stops being triggered took a steady upside track, while the London market seemingly struggled but nevertheless managed to maintain a positive stance. The London market continued to end the day on a modestly positive note and with 66.7% of the earlier gains of the day intact, while the New York market ended the day on a very positive note and with 94.6% of the earlier gains of the day intact. This overall positive close and with the charts looking positive is perhaps supportive for sentiment and one might expect to see a follow through steady start for the markets for early trade today against the prices set yesterday, as follows:

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

MAY 1658 + 7                                       MAY 132.70 + 3.90
JUL 1686 + 6                                            JUL 133.60 + 3.50
SEP 1698 + 7                                            SEP 135.40 + 3.45
NOV 1711 + 7                                         DEC 137.95 + 3.40
JAN 1722 + 6                                         MAR 140.50 + 3.25
MAR 1734 + 4                                       MAY 141.90 + 3.10
MAY 1749 + 4                                         JUL 143.10 + 3.05
JUL 1764 + 4                                           SEP 144.15 + 3.00
SEP 1778 + 4                                          DEC 145.80 + 2.25
DEC 1797 + 4                                        MAR 147.35 + 3.00