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I. & M. Smith (Pty) Ltd.

Coffee Market Report

19 May 2016
The well-respected U.S.A. Department of Agriculture Foreign Agricultural Service or USDA has come to the fore with a forecast for the next Mexican crop that shall be harvested between October 2016 and March 2017, which they foresee shall be 4.5% higher at 2.3 million bags. This is however a significantly lower number than the many private trade and industry forecasts, which talk of a Mexican coffee crop that is still well in excess of 3 million bags.

The USDA has forecasted in terms of the Central America countries for their next October 2016 to March 2017 harvest, that the next Guatemala crop shall 1.69% lower than the past crop, at 3,373,000 bags, while they foresee that the next Costa Rican crop that shall be approximately 3% higher than the previous crop, looking at a new crop of approximately 1.7 million bags.

The USDA has forecasted that the coffee production in Colombia for the next October 2016 to September 2017 coffee year shall be 2.2% lower than the present coffee year, at a total of 13.3 million bags. This number is perhaps somewhat conservative in nature, as one would expect that post the probability of a did in production from this year’s Mitaca crop that is presently in progress and so long as there is no significant La Nina for the end of the year, one would expect the follow on 2016 to 2017 crop to rise above 14 million bags.

The Colombian new mid-year Mitaca crop is starting to pick up in harvest but as of yet, there has been no indication as to how much damage might have been caused to the volumes due from this harvest, as a result of the El Nino dry weather conditions over the last quarter of 2015 and the first quarter of this year. This dry weather many had predicted, would reduce the original crop potential by in excess of 1 million bags but it is early days as of yet and it will take a couple of months still, to accurately assess the outcome of this new Mitaca harvest. It remains however a potentially supportive factor, for medium to longer term sentiment within the New York arabica coffee market.

The USDA has forecasted that the coffee production in Uganda for the next October 2016 to September 2017 coffee year shall be a rather dramatic 17.78% lower than their increased number for the present coffee years production, to see production in coming coffee year at 3.7 million bags. This dip in production they appropriate to mostly the negative effects of biennial bearing, following the present year’s record production of 4.5 million bags. The major decline being related to their assessment that robusta coffee production in the coming year shall be 600,000 bags lower.

The Coffee and Cocoa Council of the Ivory Coast West, Africa’s leading robusta coffee producer, have come forth with their latest figures for the first quarter of this year. In this respect they have reported that new crop coffee arrivals into the port warehouses for the for the period January to March 2016 were 13% lower than the same period last year, at a total of 1,598,300 bags. While they have also reported that exports, albeit 64,450 bags or 20.15% higher than the same three month period last year at a total of 384,233 bags, are still well below the evidence of the available coffees. While many still forecast that by the end of the coffee year, the crop shall prove to be between 1.8 million and 2 million bags.

This steady performance from the Ivory Coast in terms of their contribution to the global robusta coffee supply does not detract from the forecasts that Indonesia, India and Brazil shall contribute smaller volumes of robusta and conilon robusta coffees to global robusta coffee supply for the medium term. Thus with Vietnam holding the only stocks that can fill in for the dip in supply from these three countries, that the prevailing internal market price resistance within Vietnam is likely to continue for the foreseeable future.

The July on July contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 54.40 usc/Lb., while this equates to a 41.81% 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 2,317 bags yesterday; to register these stocks at 1,366,987 bags. There was meanwhile a larger in volume 10,174 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 13,358 bags.

The commodity markets had a mixed day yesterday, but with the U.S. dollar experiencing some renewed muscle the over overall macro commodity index tended softer for the day. The Oil, Cocoa and Corn markets had a day of buoyancy and the Wheat market was steady, while the Natural Gas, Coffee, Sugar, Cotton, Copper, Orange Juice, Corn, Soybean, Gold and Silver markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.40% lower; to see this Index registered at 411.13. The day starts with a steady U.S. Dollar showing a degree of buoyancy and trading at 1.4582to Sterling and 1.128 to the Euro, while North Sea Oil is tending softer in early trade and is selling at 47.50 per barrel.

The London market and New York markets started the day yesterday taking a softer track and presumably with the thoughts of the markets being somewhat over bought over the past few days, tending to dampen spirits within the markets, as they added to their losses into the afternoon trade. This remained very much the direction for the rest of the day and with the New York market taking a negative sideways track, while the London market added to its losses of the day. The London market continued to end the day on a very soft note and with 88.2% of the earlier losses of the day intact, while the New York market ended the day on a soft note and with 74.3% of the earlier losses of the day intact. The markets are in receipt for the present in mostly longer term market supportive forecasts from the USDA, but with yesterday’s soft close and with the dollar showing some buoyancy, it might inspire little better than a cautious near to steady start for early trade today against the prices set yesterday, as follows:

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

MAY 1640 – 30                                  MAY 129.30 – 2.55
JUL 1669 – 30                                       JUL 130.10 – 2.60
SEP 1684 – 29                                       SEP 132.05 – 2.55
NOV 1699 – 29                                    DEC 134.75 – 2.45
JAN 1710 – 31                                     MAR 137.40 – 2.40
MAR 1723 – 31                                   MAY 138.95 – 2.30
MAY 1738 – 31                                     JUL 140.25 – 2.20
JUL 1753 – 31                                        SEP 141.40 – 2.15
SEP 1767 – 31                                       DEC 143.05 – 2.05
DEC 1786 – 31                                     MAR 144.60 – 2.05