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


I. & M. Smith (Pty) Ltd.

Coffee Market Report

10 Jun 2016
The well-respected Brazilian analysts Safras & Mercado have reported that as Monday this week and following some interruptions to the harvest from the recent unseasonal rains, that 25% of the new Brazil coffee crop had been harvested, out of their forecasted new 56.4 million bags crop. With the volume of harvest so far weighted by the earlier in maturity new and smaller conilon robusta coffee harvest, but with the new and much larger new arabica coffee crop harvest now picking up in volume.

Meanwhile in terms of forward sales of the new Brazil crop Safras & Mercado have estimated to be a relatively modest 26%, which tends to illustrate some degree of internal market price resistance that has come with the firming of the Brazil Real in recent weeks that has taken some of the advantage of the exchange rate away from internal market prices as related to the reference prices of the international terminal markets. However with the recent rally in these markets, one might have expected that this might have been somewhat encouraging for farmers to price in some of their forthcoming new crop coffees. Albeit that many might still be restrained, as they await the outcome of the coming cold and frost threatening weekend, with the cold weather forecasted to carry on into early next week.

In terms of the frost threat to the South East Brazil main arabica coffee districts, the Brazilian weather forecaster Somar reported yesterday that the cold front is unlikely to bring frost conditions to the lower and medium altitude coffee districts, but might still impact with frosts for the high grown districts. It is noted however that with the rains so far this year that the ground water retention levels within these districts are relatively good for the present, which relates to the moist trees being somewhat more resistant to frosts and therefore limiting the frost damage risk in terms of any light frosts being encountered. However there would be no doubt that a medium to severe frost over any of the coffee farms, would be damaging for the prospects for the next 2017 crop from these farms and the threat remains in place for the present.

The U.S.A. Government Climate Prediction Centre has updated its forecasts for the possibility of a new La Nina phenomenon to develop within the Pacific Ocean this year, with the announcement yesterday that there is now a 75% chance for the El Nino to start to come into play by September and to become more intense during the last quarter of this year. This phenomenon should it so develop, is likely to bring with it and in terms of coffee producing countries some increased and beneficial rains for Colombia and Indonesia, but drier conditions for the South East Brazil arabica coffee districts for the coming summer rain season. This would not be too much of a concern, but should it prove to be a very intense La Nina, it would start to become damaging for the coming years crops for all of these producers and is a factor that shall be closely watched over the next few months.

The September to September contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 58.10 usc/Lb., while this equates to a 42.77% 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 100 bags yesterday; to register these stocks at 1,309,090 bags. There was meanwhile a larger in volume 2,200 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 30,547 bags.

The commodity markets were mixed but many tended to come off the boil yesterday, with the overall macro commodity index tending to take a marginally softer track for the day. The Natural Gas, Sugar, Cocoa, Orange Juice, Soybean, Gold and Silver markets had a day of buoyancy, while the Oil, Coffee, Cotton, Copper, Wheat and Corn markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.14% lower; to see this Index registered at 434.17. The day starts with the U.S. Dollar showing a degree of renewed buoyancy and trading at 1.446 to Sterling and 1.129 to the Euro, while North Sea Oil is tending softer in early trade and trading at 50.20 per barrel.

The London market and New York markets started the day yesterday with some degree of buoyancy and with the London market tending to shrug off the negative effects of producer selling, to see both markets taking a positive track for early afternoon trade. However as the afternoon progressed the New York market took a relatively swift reversal and started to attract profit taking and price fixation sell stops to accelerate the losses, with the London market following suit in a more modest manner. This reversal in the fortunes of the markets set the New York market for a steady downside track for the rest of the day’s trade, while the London market tended to take a more modest erratic but negative sideways track for the day. The London market continued to end the day on a modestly negative note and with 80% of the earlier losses of the day intact, while the New York market ended the day on a negative note and with 93.5% of the earlier losses of the day intact. This close does not detract from the fact that for the present the London charts still look relatively positive, while the New York market is more weather than chart related in sentiment. Thus one might expect that with the Brazil weather threat still and issue that the markets might be due for a cautious and hesitant near to steady start for early trade today against the prices set yesterday, as follows:


JUL 1685 – 12                                       JUL 133.95 – 5.70
SEP 1714 – 12                                       SEP 135.85 – 5.80
NOV 1730 – 10                                     DEC 138.40 – 5.80
JAN 1742 – 10                                     MAR 140.90 – 5.75
MAR 1757 – 7                                     MAY 142.45 – 5.85
MAY 1774 – 5                                       JUL 144.00 – 5.80
JUL 1789 – 5                                         SEP 145.50 – 5.75
SEP 1802 – 5                                        DEC 147.50 – 5.65
DEC 1821 – 5                                      MAR 149.20 – 5.60
MAR 1817 – 5                                     MAY 150.10 – 5.60