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

Coffee Market Report

15 Jul 2016
The Vietnam Coffee and Cocoa Association who are traditionally very conservative with their coffee crop reports and forecasts have lowered their forecast for a 30% dip in volume for the next October to December harvest, to now report that they foresee a 20% to 25% dip in the size of the new crop. One might however need to keep this matter in perspective and in terms of their report that the last coffee crop was only around 22.3 million bags, that their figures are historically well below the reality of coffee export volumes out of the country and one would think that this latest assessment for a new crop or around 17 million bags is perhaps as much as 10 million bags below the many and more reliable trade and industry forecasts emanating from Vietnam. Thus the report is unlikely to have much influence upon market sentiment for the related London market, albeit that this aside the market is presently showing good buoyancy.

There is however no doubt that despite only a marginally lower new Vietnam coffee crop due to be harvested during the last quarter of this year and with most talking this new crop that has suffered from the relatively late start to the summer rain season and with many talking around a 7% dip in production, that there shall be a tighter global robusta coffee supply due for the coming October 2016 to September 2017 coffee year. This as a result of the more modest and El Nino affected new conilon robusta crop out of Brazil this year, which is accompanied by the similar El Nino effected lower new Indonesian robusta coffee crop. These lower crops already very evident by the prevailing modest in volume and at relatively high price differentials robusta exports, which is likely to remain the case until at least June next year.

Meanwhile the Climate Prediction Service of the U.S.A. National Weather Service have lowered their earlier 75% chance for a new La Nina weather phenomenon to come into play within the Pacific Ocean for the last quarter of this year, to now say that there is only a 55% to 60% chance for a La Nina to develop. Thus the threat for excessive and crop damaging rains for Colombia and Indonesia and unseasonal dry conditions for the South East Brazil arabica coffee districts for the first quarter of next year has been lessened to a degree, albeit that the chance factor still being over 50%, is nevertheless weighted towards being a possibility. Thus there is no doubt that in the coming two to three months, there shall be significant market focus on the weather reports for the Pacific Ocean and Pacific Rim countries.

In India however the June to September summer monsoon rain season has so far brought with it 4% above average rains, which is a significant improvement over the rains experienced over the past two years. These rains are no doubt beneficial for the prospects for the developing new coffee crops, which start being harvested late this year.

The Colombian government and with the general truckers strike continuing have announced that they are going to take a tough stance towards truckers who look to accentuate the effects of the strike with road blocks as they have been doing so in the recent weeks, with their intent to impound trucks that participate in such activities and to furthermore revoke licences for the drivers and the trucks with heavy fines up to the equivalent of US$ 163,458.00. These new rules the Colombian President says, shall be enforced by the doubling up of the police and soldiers who shall be allocated to the control of the roads, to 50,000. But for the present, this does little to assist to eliminate the problem of the lack of delivery of new crop coffees to the export ports, which is resulting in delayed shipments and the tightening of supply of fine washed arabica Colombian coffees to the consumer markets.

The September to September contracts arbitrage between the London and New York markets broadened yesterday, to register this at 68.60 usc/Lb., while this equates to a 45.09% 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 1,075 bags yesterday; to register these stocks at 1,296,127 bags. There was meanwhile a larger in volume 2,447 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 12,063 bags.

The commodity markets shall perhaps gain some support from marginally better than expected Chinese GDP growth figures following an mostly positive day yesterday, which saw the overall macro commodity index taking a positive track for the day. The Oil, Natural Gas, Sugar, Cocoa, Coffee, Cotton, Copper and Orange Juice markets had a day of buoyancy, while the Wheat, Corn, Soybean, 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 0.34% higher; to see this Index registered at 435.90. The day starts with the U.S. dollar steady and trading at 1.343 to Sterling and 1.112 to the Euro, while North Sea Oil is near to steady in early trade and trading at 45.70 per barrel.

The London market and New York markets started the day yesterday with follow through buoyancy which set both markets for an upside track for the day’s trade, with sufficient support under the markets to counter the light volumes of profit taking and price fixation selling pressure, through the day. The London market ended the day on a positive note and with 96.3% of the earlier gains of the day intact, while the New York market ended the day on a very positive note and with 89.1% of the earlier gains of the day intact. This close contributes to a positive picture for the charts and is presumably supportive for the markets, but one has to consider that there has to be at some time a degree of exhaustion on the part of the funds and while one might expect that the positive nature of the close might be supportive for some degree of buoyancy for early trade today, that there might be some pre-weekend profit taking and price fixation selling due for the markets against the prices set yesterday, as follows:

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

JUL 1836 + 26                                     JUL 150.30 + 4.10
SEP 1842 + 26                                     SEP 152.15 + 4.50
NOV 1860 + 26                                   DEC 155.10 + 4.55
JAN 1872 + 25                                   MAR 157.75 + 4.45
MAR 1881 + 24                                 MAY 159.25 + 4.45
MAY 1893 + 23                                   JUL 160.40 + 4.40
JUL 1905 + 23                                     SEP 161.50 + 4.40
SEP 1918 + 23                                    DEC 163.15 + 4.45
NOV 1937 + 23                                 MAR 164.70 + 4.50
JAN 1933 + 23                                  MAY 165.50 + 4.50