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

Coffee Market Report

12 Jul 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 8.77% over the week of trade leading up to Tuesday 5th. July; to register a net long position of 32,401 Lots. Meanwhile the longer term in nature Index Fund sector of this market increased their net long position within the market by 4.79%, to register a net long position of 34,627 Lots on the day.

Over the same week the Non Commercial Speculative sector of this market increased their long position within the market by 12.93%, to register net long position of 32,792 Lots. This net long position which is the equivalent of 9,296,387 bags has most likely been further increase, 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 increase their net long position within this market by 41.9% during the week of trade leading up to Tuesday 5th. July; to register a long position of 16,709 Lots. This net long position which is the equivalent of 2,784,833 bags has most likely to have been further increased, following the period of overall positive trade that has since followed.

The coffee markets continued yesterday to defy the lack of strong supportive fundamental news behind the markets as while there are some new Brazil arabica coffee crop quality fears and further fears that the last quarter of this year might bring with it La Nina phenomenon damaging weather in the form of excessive rains for Colombia and Indonesia and likewise further afield potentially damaging dry weather conditions for South East Brazil, the quality issue is questionable in volume and for the present the La Nina is a mild threat rather than fact and cannot be realistically seen to be reason to confirm any threat of tightening coffee supply for the coming year.

Thus while the charts have been developing a positive picture for the markets over the recent weeks and have supported strong speculative and fund support for the New York and London markets, one has to consider that once exhaustion sets in to halt to the present bull run for the markets that once again came with a degree of aggression yesterday, might well not only trigger a profit taking correction but bring with it aggressive catch up producer price fixation selling and stop loss speculative profit taking selling. This has the potential to be quite an aggressive correction, but not to the same extent as has been the positive correction for the markets over the past two months.

In terms of weather and following the small scare over the threat of frost to the southern arabica coffee districts in Brazil last month, the most vulnerable to frost damage full moon period comes around again next week, with the full moon due in a week’s time on Tuesday 19th. July. However for the present the long range weather forecasts do not indicate any chance for especially cold and potentially freezing weather due for the rest of this week and for next week, which should side line any chance of fears of frost damage for the coffee farms and their potential for the follow on 2017 Brazil arabica coffee crop.

The September to September contracts arbitrage between the London and New York markets broadened yesterday, to register this at 66.34 usc/Lb., while this equates to a 44.43% 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 540 bags yesterday; to register these stocks at 1,297,892 bags. There was meanwhile a similar in number 465 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 9,040 bags.

The commodity markets were seemingly on the side-lines yesterday and were very much mixed in trade, while the equity global equity markets had a strong day’s trade, with the overall macro commodity index taking a modestly softer track for the day. The Sugar, Coffee and Cotton markets did however have a strong day’s trade and with the Cocoa, Copper, Soybean and Silver markets having a day of buoyancy, while the Oil, Natural Gas, Orange Juice, Wheat, Corn and Gold markets had a softer days trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.11% lower; to see this Index registered at 429.68. The day starts with the U.S. dollar near to steady and trading at 1.308 to Sterling and 1.108 to the Euro, while North Sea Oil is steady in early trade and trading at 44.05 per barrel.

The London market and New York markets started the day yesterday with a degree of buoyancy and with both markets taking heart from this follow through from Friday positive start to start adding value and taking a positive track into the early afternoon trade, which started to trigger buy stops for the New York market and to accelerate the gains for this volatile market, with the London market following suit in a more modest manner. The markets did however encounter some profit taking and producer price fixation selling at the highs, to see the markets taking more of a sideways positive track through to the close of the day. The London market ended the day on a positive note and with 84.2% of the earlier gains of the day intact, while the New York market ended the day on a very positive note and with 88.9% of the earlier gains of the day intact. This close provides for a positive look for the charts, but one might fear that following such a rally and one that lacks strong fundamental reason that there might be some inspiration for profit taking and opportunist producer price fixation selling coming into play, which might inspire a modest negative correction for early trade today against the prices set yesterday, as follows:

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

JUL 1827 + 32                                       JUL 147.95 + 5.20
SEP 1829 + 32                                       SEP 149.30 + 5.20
NOV 1843 + 33                                    DEC 152.15 + 5.10
JAN 1854 + 35                                    MAR 154.80 + 5.00
MAR 1863 + 35                                  MAY 156.35 + 4.90
MAY 1874 + 35                                    JUL 157.60 + 4.80
JUL 1886 + 35                                       SEP 158.75 + 4.70
SEP 1899 + 35                                      DEC 160.45 + 4.70
DEC 1918 + 35                                    MAR 161.85 + 4.60
MAR 1914 + 35                                   MAY 162.65 + 4.55