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

Coffee Market Report

23 Jun 2016
The Ministry of Trade in Ethiopia and with the country working on a July to June Financial year, have reported that the country has exported 2.9 million bags of coffee over the past eleven months, which they say is pointing to a record year in volume of coffee exports. Making the point that with a forecasted export volume for the coffee year of 3 million bags and monthly exports for the year so far having averaged 257,576 bags per month that they are on track to easily exceed their expectations.

They do however note that while they are exuberant over the better than expected volume of coffee exports which they now estimate shall be in excess of 3.3 million bags by the end of the month and the end of the financial year, the value of exports for the first eleven months of this coffee year was a relatively modest 620 million U.S. Dollars, which is lower than the budgeted 766 million U.S. dollars for this coffee year. This would indicate that even with a potential 10% increase in estimated coffee exports for the coffee year, that the value of these exports is unlikely to get close to the budgeted income for the year.

Despite the disappointment of the potential for a lower than expected income from coffee exports for the country for their present financial year which is related to the negative influences of the international coffee markets, the Ministry of Trade have not lost heart. Rather they are focused upon the positive influences of the various programs in play that are assisting to raise coffee yields and they indicate that they propose to budget for coffee exports to increase to in excess of 3.8 million bags for the coming July 2016 to June 2017 financial year, with a budgeted value of 970 million U.S. dollars.

The Ministry of Agriculture in Angola which is a country that used to produce close to 3.8 million bags of some of the finest robusta coffees in the world prior to independence in 1974 and when the country was the world’s fourth largest coffee producer, has pointed to the present production of approximately 200,000 bags per annum as reason for the country to do more to resuscitate their coffee industry. Thus with the formation of the National Coffee Institute, they plan to provide coffee seedlings and finance programs for farmers, so as to encourage a coffee farming to develop and to see the country steadily start on an upside track in terms of coffee production.

The slow summer roasting season for the main northern hemisphere coffee consumer countries is starting to have an impact and the physical trade in coffee is presently slow, but with most industry players holding forward cover for the coming months, there is nevertheless steady export activity from the producers. There are however now only relatively modest volumes of new business being concluded and the physical coffee trade that is now mostly related to pockets of fill in business rather than to trade houses taking on positive differential stocks, is very much lacklustre in nature.

The September to September contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 62.23 usc/Lb., while this equates to a 44.55% 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 1,300 yesterday; to register these stocks at 1,318,768 bags. There was meanwhile a smaller in number 275 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 3,265 bags.

The commodity markets mostly tended to ease in trade yesterday, despite a modest reversal in the fortunes of the fortunes for the U.S. dollar, with the overall macro commodity index taking a softer track for the day. The Cocoa, Copper, Wheat, Corn and Soybean markets nevertheless showed some degree of buoyancy, while the Oil, Natural Gas, Sugar, Coffee, Cotton, Orange Juice, 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 0.37% lower; to see this Index registered at 426.18. The day starts with the softer U.S. Dollar losing its way to a more robust pre referendum pound and trading at 1.477 to Sterling and 1.133 to the Euro, while North Sea Oil is steady in early trade and trading at 48.55 per barrel.

The London and New York markets started the day with a degree of buoyancy yesterday and with the New York market taking a positive track into the afternoon trade, while the London market remained steady and mostly to the positive side of par. As the afternoon progressed the New York market started to come under pressure and shed its gains to fall back into negative territory, while the London market continued to maintain a steady sideways track. The New York market did however manage to bounce back off the lows but remaining within negative territory, while the London market finally succumbed to selling pressure to take a late dip to the south of par. The London market ended the day on a modestly negative note and with 87.5% of the late in the day losses intact, while the New York market ended the day on a negative note and with 56.8% of the earlier losses of the day intact. The Brazil Real following some positive political news and a general emerging market currency buoyancy has recovered further against the U.S. dollar and is trading at 3.38 to the dollar which might bring some degree of positive sentiment into play, to perhaps see the markets take a steady track for early trade today against the closing prices yesterday, as follows:

LONDON ROBUSTA US$/MT          NEW YORK ARABICA USc/Lb.

JUL 1675 – 8                                        JUL 136.95 – 1.55
SEP 1708 – 7                                        SEP 139.70 – 1.25
NOV 1724 – 6                                     DEC 142.35 – 1.20
JAN 1734 – 6                                      MAR 144.85 – 1.15
MAR 1748 – 6                                    MAY 146.30 – 1.10
MAY 1763 – 6                                      JUL 147.50 – 1.10
JUL 1776 – 6                                        SEP 148.70 – 1.10
SEP 1790 – 6                                       DEC 150.30 – 1.05
DEC 1809 – 6                                     MAR 151.70 – 1.00
MAR 1805 – 6                                    MAY 152.55 – 1.00