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

Coffee Market Report

01 Jul 2016
With the month of June past, the Indonesia government trade data from Sumatra which is the leading coffee producing island within Indonesia, has reported that the islands robusta coffee exports for the month were 350,983 bags or 69.47% lower than the same month last year, at a total of 154,260 bags. This dip in exports has contributed to the islands cumulative robusta coffee exports for the first nine months of the present October 2015 to September 2016 coffee year to be 1,568,615 bags or 47.84% lower than the same period in the previous coffee year, at a total of 1,710,511 bags.

This sharp dip in robusta coffee exports for the coffee year so far from Sumatra is very much in line with the expectations of a lower new crop that was due, as a result of the relatively dry conditions that were experienced over the last quarter of last year and the first quarter of this year, as a result of the El Nino phenomenon that occurred. But it is perhaps excessive to think that the damage was as dramatic as might be indicated by the close to 50% dip in exports for the first nine months of the present coffee year, as there is evidence that the new crop is now starting to peak and that good volumes of new crop robusta coffees are coming to the mills for grading.

Thus one might expect that in the coming months and with some assistance from the prevailing improved prices of the reference prices of the London market to assist exporters to pay up for new crop stocks from a somewhat price resistant farming community, that export volumes shall start to pick up in volume. But there is no doubt that by the end of this present October 2015 to September 2016 coffee year that the robusta coffee exports from Sumatra shall prove to be significantly lower than the previous coffee year.

In the meantime with Vietnam having entered their last October to December 2015 new crop with a record carry over stock of what was speculated to have been a minimum of 5 million bags and with many talking as high as 8 million bags of robusta coffees, this dip in production and exports of robusta coffees from Indonesia has not really had any impact upon consumer market supply of robusta coffees. However with Vietnam having filled in with its stocks over the past nine months for the more modest delivery out of Indonesia it will be liquidating a good percentage of the countries stocks, while with Vietnam now forecasted to experience an approximate 7% dip in production for its next October to December 2016 harvest, the country shall not have the possibility to rebuild robusta stock levels.

Thus with the smaller new Brazil conilon robusta coffee crop that is near to completion and with its strong domestic market demand due to limit availability of Brazil conilon robusta coffees for the consumer markets, while the new Indonesian robusta coffee crop is only due to start in April 2017, one can foresee continued internal market price resistance from the robusta coffee producers for the foreseeable future. This with resulting positive export differentials for robusta coffees for the rest of the year and at least the first half of next year is likely to eliminate any possibility of growth for the certified stocks held against the London market, which might be seen to be a supportive factor for the longer term prospects of this market.

The September to September contracts arbitrage between the London and New York markets broadened yesterday, to register this at 67.77 usc/Lb., while this equates to a 46.53% 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 4,207 yesterday; to register these stocks at 1,309,963 bags. There was meanwhile a smaller in number 2,415 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 3,216 bags.

The commodity markets and with many players presumably squaring their books for the end of the second quarter of the year had mixed day of trade yesterday, with the overall macro commodity index tending taking a modestly softer track for the day. The Natural Gas, Coffee, Copper, Orange Juice, Wheat, Soybean and Silver markets had a day of buoyancy, while the Oil, Sugar, Cocoa, Cotton, Corn and Gold markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.29% lower; to see this Index registered at 432.94. The day starts with the U.S. dollar steady and trading at 1.327 to Sterling and 1.107 to the Euro, while North Sea Oil is showing a degree of buoyancy in early trade and trading at 48.40 per barrel.

The influential U.S.A. based commodity markets are due a long weekend, with the July 4th. Independence Day holiday on Monday and one might expect that by later in the day today, there might already be a tailing down of activity for the commodity markets later today. But post the closing of second quarter books yesterday, one might also expect some adjustment trading to bring volatility to the pre long weekend markets.

The London and New York markets had a slow start to the day yesterday, but with both markets showing buoyancy from the start of the day’s trade and taking a positive track into the afternoon trade. However as the afternoon progressed the New York market came under pressure and with sell stops in play, took a relatively sharp dip back into negative territory which was resisted for some time within the London market which finally succumbed to selling pressure and joined the New York market in south of par territory. Both markets did however recover later in the afternoon, but while there was not sufficient support to take the London market back up into positive territory, the New York market took a steady positive track for the rest of the day and to set a positive close for the day. The London market ended the day on a modestly negative note and with 55.6% of the losses of the day intact, while the more volatile New York market ended the day on a positive note and with 34.8% of the earlier gains of the day intact. This close is somewhat supportive for the charts and sentiment but with perhaps the New York market somewhat overbought and a lack of striking supportive fundamental news for coffee, one might think that there could be some pre long weekend selling coming into play for the day and perhaps little better than a near to steady start for the markets for early trade today against the prices set yesterday, as follows:

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

JUL 1688 – 8                                       JUL 144.10 + 1.25
SEP 1717 – 5                                       SEP 145.65 + 1.20
NOV 1731 – 5                                     DEC 148.30 + 1.10
JAN 1740 – 5                                     MAR 150.75 + 1.00
MAR 1751 – 5                                   MAY 152.15 + 1.00
MAY 1764 – 5                                     JUL 153.35 + 1.00
JUL 1776 – 5                                       SEP 154.50 + 1.10
SEP 1789 – 5                                      DEC 156.25 + 1.25
DEC 1808 – 5                                    MAR 157.80 + 1.40
MAR 1804 – 5                                   MAY 158.55 + 1.35