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

Coffee Market Report

24 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 long position within the market by 464.56% over the week of trade leading up to Tuesday 17th. May; to move into a net long position of 17,603 Lots. Meanwhile the longer term in nature Index Fund sector of this market decreased their net long position within the market by 1.51%, to register a net long position of 32,771 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 569.67%, to change to and register net long position of 12,789 Lots. This net long position which is the equivalent of 3,625,625 bags has most likely been since been sharply reduced over the period of mixed but overall more negative trade which has since followed and likewise, that of the Managed Money Fund sector 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 increase their net long position within this market by 16.46% during the week of trade leading up to Tuesday 17th. May; to register a long position of 10,962 Lots. This net long position which is the equivalent of 1,827,000 bags has most likely to have since been reduced, following the period of mixed but mostly negative trade that has since followed.

The coffee markets are presently devoid of striking new fundamental news and for the present with the new and larger Brazil arabica coffee crop very much fact, while overall producer stocks are seemingly more than sufficient in number to counter the medium term supply hiccups that come from the El Nino affected Indonesian and Colombian Mitaca crops, there would appear to be no reason for the funds to buoy the coffee markets. There are of course the repetitive forecasts for an approximate 75% chance for a weather damaging La Nina phenomenon to develop within the Pacific Ocean during the last quarter of the year, but this is still not a certainty and too far away one would think, for it to encourage any form of aggressive support for markets that might encounter tightening coffee supply in the coming year.

Meanwhile with the markets and particularly so the more volatile New York market having shrugged off the brief spells of exuberance that was encountered with the three March, April and May rallies, there would appear to be some degree of exhaustion in terms of market sentiment for the present. This with the slow summer holiday season for the main northern hemisphere markets now on the horizon, does not inspire much in the way of short term confidence.

The new Brazil frost season is on a nearby horizon and with the most threatening period being over the next couple of months but with it being twenty two years now since the last time that frost had any impact upon the Brazil coffee districts, there is no longer any concern being noted within the coffee markets. Likewise there has not been the evidence of any volume of pre frost season precautionary cover being taken by the consumer market industries, which is perhaps adding to the lacklustre nature of the prevailing physical coffee trade and the lack of excitement within the markets.

The July on July contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 47.63 usc/Lb., while this equates to a 38.99% 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 1,403 bags yesterday; to register these stocks at 1,356,748 bags. There was meanwhile no change to the number of bags pending grading for this exchange; to register these pending grading stocks at 13,447 bags.

The commodity markets had an overall down day yesterday and with most markets tending to look south for the day, to see the overall macro commodity index taking a softer track for the day. The Cocoa and Corn markets nevertheless had a day of buoyancy and the Natural Gas market was steady for the day, while the Oil, Sugar, Coffee, Cotton, Copper, Orange Juice, Wheat, 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 0.69% lower; to see this Index registered at 404.70. The day starts with a degree of buoyancy for the U.S. Dollar which is trading at 1.449 to Sterling and 1.121 to the Euro, while North Sea Oil is tending softer in early trade and is selling at 47.70 per barrel.

The London market and New York markets started the day yesterday on a marginally softer note, but with both markets losing some weight in thin and relatively lacklustre trade, to take a softer track into the afternoon. As the afternoon progressed the New York market and with some encouragement from the soft nature of the overall macro commodity index attracted sell stops and extended its losses, with the London market likewise losing a little more weight. Both markets continued remained on this soft track for the rest of the day’s trade but while the New York market remained at the lower end of its day’s trading range, the London market did manage to bounce back off the lows late in the day. The London market continued to end the day of a soft note, with 63% of the earlier losses of the day intact, while the New York market ended the day on a very soft note and with 94.4% of the earlier losses of the day intact. This soft close for the New York market and with the charts looking negative while the U.S. dollar continues to show some muscle does little to inspire and one cannot expect much better than a 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 1615 – 17
JUL 1643 – 17                                     JUL 122.15 – 2.55
SEP 1657 – 19                                     SEP 124.10 – 2.55
NOV 1666 – 24                                  DEC 126.90 – 2.50
JAN 1676 – 27                                   MAR 129.55 – 2.55
MAR 1688 – 27                                 MAY 131.30 – 2.45
MAY 1703 – 27                                   JUL 132.70 – 2.50
JUL 1718 – 27                                      SEP 133.95 – 2.45
SEP 1733 – 26                                     DEC 135.60 – 2.40
DEC 1752 – 26                                   MAR 137.30 – 2.40