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


I. & M. Smith (Pty) Ltd.

Coffee Market Report

21 Jun 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 net long position within the market by 496.58% over the week of trade leading up to Tuesday 14th. June; to register a net long position of 20,242 Lots. Meanwhile the longer term in nature Index Fund sector of this market increased their net long position within the market by 0.22%, to register a net long position of 32,721 Lots on the day.

Over the same week the Non Commercial Speculative sector of this market increased their long position within the market by 705.77%, to register net long position of 19,137 Lots. This net long position which is the equivalent of 5,425,256 bags has most likely been further increased, over the period of mixed but overall positive trade that 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 decrease their net long position within this market by 65.3% during the week of trade leading up to Tuesday 14th. June; to register a long position of 2,361 Lots. This net long position which is the equivalent of 393,500 bags has most likely to have been since buoyed, following the period of mixed but overall more positive trade that has since followed.

The well-respected United States Department of Agriculture Foreign Agricultural Service USDA in their June report have forecasted that world coffee production and supply for the coming October 2016 to September 2017 coffee year, shall increase by 1.57% over the present coffee year, to total 155,697,000 bags. Against this improved production figure the USDA have indicated that the foresee overall producer and consumer market consumption for this coming coffee year to be 150,806,00 bags, which would indicate that with potential weather problems for some of the major producers aside, that there shall be no threat to consumer market coffee supply for the foreseeable future and by nature, the report does not favour the speculative bulls within the recently recovered markets.

One has to comment however that with the International Coffee Organisation and many other private trade and industry reports indicating a world coffee consumption of closer to 154 million bags per annum, that the USDA 2016/2017 crop does actually only indicate a very modest surplus coffee supply for the coming coffee year. Therefore with world stocks having declined during the present coffee year to something in the order of 35 million bags, that the markets remain vulnerable to the possibility of the negative effects of a potential La Nina phenomenon for the last quarter of this year and the first quarter of the coming year. This is perhaps a factor that might well dampen bearish spirits to a degree, until there is some more certainty over the La Nina factor, later on this year.

The September to September contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 64.51 usc/Lb., while this equates to a 45.65% 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 1,919 yesterday; to register these stocks at 1,323,151 bags. There was meanwhile a larger in number 4,608 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 7,035 bags.

The commodity markets were mixed in trade yesterday, as were the fortunes of the U.S. dollar that while losing some way to Sterling, posted some recovery against the Euro for the day. The overall macro commodity index did however retain some degree of buoyancy, to take a steady track for the day. The Oil, Natural Gas, Cocoa, London robusta Coffee, Copper and Silver markets had a day of buoyancy, while the Sugar, New York arabica Coffee, Cotton, Orange Juice, Wheat, Corn, Soybean and Gold markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.37% higher; to see this Index registered at 432.03. The day starts with the U.S. Dollar tending softer and trading at 1.470 to Sterling and 1.133 to the Euro, while North Sea Oil is near to steady in early trade and trading at 48.70 per barrel.

The London market started the day yesterday with a degree of buoyancy, while the New York market had a softer start for the day and with the markets retaining this stance into early afternoon trade when further losses for the New York market were followed by a dip back into negative territory for the London market. The London market did however recover back into positive territory as the afternoon progressed, but with the New York market remaining south of par and with both markets from thereon, taking an erratic sideways track and with London north and New York south of par, towards the close. The London market ended the day on a positive note and with 73.1% of the earlier gains of the day intact, while the New York market ended the day on a softer note and with 46.3% of the earlier losses of the day intact. This mixed close is not constructive for confidence, as would be the evidence of the extensive net long positions that have been created within the New York market and lacking any striking positive fundamental news, one might expect little better than a near to steady start for early trade today against the prices set yesterday, as follows:


JUL 1665 + 20                                        JUL 139.50 – 1.25
SEP 1693 + 19                                        SEP 141.30 – 1.55
NOV 1710 + 19                                     DEC 143.80 – 1.55
JAN 1723 + 20                                      MAR 146.20 – 1.50
MAR 1739 + 21                                    MAY 147.60 – 1.40
MAY 1757 + 21                                      JUL 148.90 – 1.35
JUL 1773 + 19                                         SEP 150.15 – 1.40
SEP 1787 + 19                                        DEC 151.80 – 1.40
DEC 1806 + 19                                      MAR 153.15 – 1.45
MAR 1802 + 19                                     MAY 154.00 – 1.45