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


I. & M. Smith (Pty) Ltd.

Coffee Market Report

20 Jun 2016
The latest Commitment of Traders report from the New York arabica coffee market has seen the Non Commercial Speculative sector of this market increase their net long position within the market by 124.09% during the week of trade leading up to Tuesday 14th. June; to register a net long position of 19,137 Lots on the day. This net long position which is the equivalent of 5,425,256 bags has most likely been further increased, following the period of overall more positive trade, which has since followed.

It would seem that the new summer rain season for Central America and Mexico is now in play, but following something of a late start and likewise, with erratic and delayed flowering for the new crop for the next October 2016 to March 2017 harvest. This is likely to delay the start of the new crop at the end of the year and to result in somewhat tight supply of fine washed arabica coffees for later in the year and even into the first quarter of the coming year, as producers will need to catch up with traditional consumer market demand for new crop coffees from the region.

One might suggest that this shall increase demand for new main crop coffees from the alternative in terms of quality Colombia coffees during the last quarter of this year, which is likely to result in some degree of internal market price resistance within Colombia. Likewise with good consumer market demand in play for these coffees, some degree of corresponding firming in the asking export differentials for Colombian fine washed arabica coffees to develop, during the second half of the year.

This does not however suggest any reason to fear any shortage of coffee supply for the coming October 2016 to September 2017 coffee year, but just a short term year end hiccup in supply within the fine washed arabica coffee sector of the market. However there still remains the suggestions of the possibility of a new La Nina phenomenon due to start coming into play during the last quarter of the year, which remains a factor that if this phenomenon proves to be fact and has any severity in its intensity, it would be likely to bring strong rains and have an impact upon both Colombian and Indonesian coffee supply for the coming year.

Thus with such a weather problem aside and the present medium to longer term ration of coffee supply to demand only modestly in surplus and with now relatively modest producer stocks following the past two years of liquidation of the Brazil arabica coffee stocks, the La Nina might be seen to be something of a longer term concern factor for the consumer market industries. Particularly so if aside from its more striking effect upon weather conditions within the Pacific Rim producer countries, it brings within drier conditions for the South East of Brazil. The La Nina is however not yet fact and even it is does come into play and is not intense in nature, it is not yet a factor that one might consider to be a bull factor for the markets but perhaps only a factor to limit the speculative down side for the markets, which might still suffer from some speculative and fund profit taking, following the recent rally.

The September to September contracts arbitrage between the London and New York markets broadened on Friday, to register this at 66.92 usc/Lb., while this equates to a 46.85% 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 increase by 3,575 on Friday; to register these stocks at 1,321,232 bags. There was meanwhile a larger in number 4,400 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 11,643 bags.

The commodity markets took some heart from the weaker nature of the U.S. dollar on Friday, to see the overall macro commodity index taking a positive track for the day. The Oil, Natural Gas, Sugar, Cocoa, Coffee, Cotton, Copper, Orange Juice, Wheat, Corn and Soybean markets had a day of buoyancy, while the 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% higher; to see this Index registered at 430.45. The day starts with the U.S. Dollar tending softer and trading at 1.456 to Sterling and 1.135 to the Euro, while North Sea Oil is showing a degree of buoyancy in early trade and trading at 47.90 per barrel.

The London and New York markets started the day on Friday with a degree of buoyancy and this seemingly inspired confidence for the markets to take a positive track into the afternoon trade and adding value, as the afternoon progressed. This buoyancy being supported by not only the positive influences of the buoyancy within the overall macro commodity index, but also from some fears created over rain damage to the new Brazil arabica coffee harvest and to the firmer Brazil currency, which was likely to impact negatively upon the volumes of Brazil price fixation selling into the New York market. The markets did however hit something of a ceiling later in the afternoon and with both markets attracting profit taking and producer price fixation selling, to see the markets settle back to more modest gains for the day. The London market ended the day on a positive note and with only 51% of the earlier gains of the day intact, while the New York market ended the day on a likewise positive note, but again with only 50% of the earlier gains of the day intact. The late in the day liquidation of close to half of the gains of the day on Friday might indicate a degree of speculative caution is due to come into play but with the weaker nature of the U.S. dollar, it might still assist to inspire a steady start for early trade today, against the prices set on Friday, as follows:


JUL 1645 + 32                                    JUL 140.75 + 1.25
SEP 1674 + 26                                    SEP 142.85 + 1.40
NOV 1691 + 26                                 DEC 145.35 + 1.30
JAN 1703 + 24                                  MAR 147.70 + 1.25
MAR 1718 + 24                                MAY 149.00 + 1.25
MAY 1736 + 25                                  JUL 150.25 + 1.20
JUL 1754 + 25                                     SEP 151.55 + 1.20
SEP 1768 + 25                                    DEC 153.20 + 1.30
DEC 1787 + 25                                 MAR 154.60 + 1.35
MAR 1783 + 25                                MAY 155.45 + 1.40