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


I. & M. Smith (Pty) Ltd.

Coffee Market Report

20 May 2016
The Brazil analysts Safras e Mercado have estimated that by Wednesday this week that 10% of the new Brazil crop had been harvested, which is a harvest factor based upon their forecast for this new crop to be approximately 56.4 million bags. This new crop harvest presently weighted towards the new conilon robusta coffee crop that comes into maturity approximately a month ahead of the arabica coffees, but with the lower grown of the arabica coffee farms also contributing to this new crop harvest.

The well-respected U.S.A. Department of Agriculture Foreign Agricultural Service or USDA has estimated that the new Brazil coffee crop that is in progress shall be 13% higher than the past crop, at a total of 55,950,000 bags. This increase related to the significantly 21.47% higher new arabica coffee crop of 43,850,000 bags, which has benefited from the good rains over the past seven months. While the report has foreseen that the due to the El Nino inspired dry weather over the past seven months, the new conilon robusta coffee crop shall be 9.02% lower this year, at a total of 12,100,000 bags.

The USDA report has also indicated that following the past years deficit crop that the countries coffee stocks declined by 7,050,000 bags and with only a relatively modest stock of 2,255,000 bags to be in hand to supplement the larger new crop supply for the coming October 2016 to September 2017 coffee year. The report does however still indicate that they foresee only a small dip in exports for the coming coffee year, which would indicate little chance for the rebuilding of stocks.

However one might suggest that with farm stock now relatively low and good consumer market demand for Brazil arabica coffees and following some active months of new crop forward sales, that farmers might be inspired to start showing a degree of price resistance that could start putting upside pressure on the asking differentials from the exporters. This might perhaps over the coming months have some influence on the export volumes and that Brazil coffee exports for the coming year and especially so with a dip in conilon robusta coffee exports a certain factor, might actually be quite a bit lower than has been experienced over the past year.

This USDA report taken at face value thought and with the report supporting many other forecasts for a new Brazil crop of in excess of 55 million bags, does contribute towards some degree of bearish sentiment within the coffee markets. Albeit that if one actually counts the numbers that world coffee supply over the coming year and especially so with the forecasts for some declines in production for Indonesia, India and Colombia still only matches, to perhaps only marginally exceeds world coffee demand for the coming year. This would make one think that during the second half of the year, that there might be sufficient supportive news to assist to buoy the presently relatively soft coffee markets.

The July on July contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 49.65 usc/Lb., while this equates to a 40.06% 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 5,644 bags yesterday; to register these stocks at 1,361,343 bags. There was meanwhile a smaller in volume 89 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 13,447 bags.

The commodity markets had a generally softer day yesterday and assisted in this decline, but the renewed muscle of the U.S. dollar and with the overall macro commodity index taking a softer track for the day and with the Coffee and Silver markets proving to be the largest losers for the day. The Natural Gas and Orange Juice markets nevertheless had a day of buoyancy, while the Oil, Sugar, Cocoa, Coffee, Cotton, Copper, Wheat, 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 1.23% lower; to see this Index registered at 406.09. The day starts with a steady U.S. Dollar trading at 1.459 to Sterling and 1.120 to the Euro, while North Sea Oil is showing some buoyancy in early trade and is selling at 48.60 per barrel.

The London market and New York markets started the day yesterday taking a softer track and retaining a soft stance into the afternoon trade, to add to the earlier losses as the afternoon progressed. The New York market was however the highlight of the day as with buy stops being triggered and trading volumes accelerating, this market experienced sharp losses and with the London market taking a less aggressive downside track for the rest of the day. The London market continued to end the day on a soft note and with 91.2% of the earlier losses of the day intact, while the New York market ended the day on a very soft note and with 96.1% of the earlier losses of the day intact. This close and with the significant losses posted for the day might perhaps encourage some degree of caution and perhaps even some corrective buying activity, which is likely to inspire a hesitantly slow and steady start for early trade today against the prices set yesterday, as follows:


MAY 1613 – 27
JUL 1638 – 31                                        JUL 123.95 – 6.15
SEP 1654 – 31                                        SEP 125.90 – 6.15
NOV 1670 – 29                                     DEC 128.70 – 6.05
JAN 1783 – 27                                     MAR 131.40 – 6.00
MAR 1797 – 26                                   MAY 133.05 – 5.90
MAY 1712 – 26                                     JUL 134.45 – 5.80
JUL 1727 – 26                                        SEP 135.60 – 5.80
SEP 1741 – 26                                       DEC 137.20 – 5.85
DEC 1760 – 26                                     MAR 138.75 – 5.85