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

Coffee Market Report

22 Jul 2016
The Brazilian analyst Safras & Mercado who have now estimated that the new Brazil crop is due to come in at 54.9 million bags and made up by 42.8 million bags of arabica coffee and 12.1 million bags of conilon robusta coffee, was 64% harvested as at Tuesday this week. This harvested percentage that they note is marginally ahead of the 62% factor a year ago, would be related to most of the earlier conilon robusta coffee new crop having been completed, which would indicate that by now at least 21 million bags of new crop arabica coffees has been harvested.

Within the report Safras & Mercado made reference to the frost reports earlier this week and noted that only very modest frosts had occurred in mostly isolated valley areas within the main arabica coffee districts, with no indication of any striking damage for the coffee farms. Meanwhile the latest medium term weather forecasts indicate that while the main Brazil arabica coffee districts are due for cool weather over the coming two weeks, that this shall not bring with it any frost threatening conditions.

There was however some degree of support for market sentiment seemingly coming to the fore during relatively thin trade for the coffee markets from forecasts for cool weather due for South East Brazil yesterday, which assisted to buoy prices in both the more volatile New York market. While it was more the talk of the significantly smaller Brazil conilon robusta coffee crop and its predictable contribution to tightening global robusta coffee supply on the longer term, that was assisting to buoy prices for the more stable London market.

Frost news aside and with indications that so far as there are no striking weather issues coming to the fore to damage coffee production within any of the main coffee producer blocs the indications are that global coffee supply might provide for a modest 2 million bags surplus for the coming October 2016 to September 2017 coffee year, but this one has to see to be a very modest surplus and perhaps much needed in terms of the need for Brazil to rebuild its depleted stocks. Thus one can expect there to be much focus upon the threat of a potentially damaging La Nina phenomenon to develop within the Pacific Ocean during the last quarter of this year, but with the likelihood for the markets to come under some pressure if this does not develop, it is likely that the relatively well bought markets and until there is more defining news about the prospects of a La Nina, are close to a nearby ceiling.

The September to September contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 64.39 usc/Lb., while this equates to a 43.85% 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 8,043 yesterday; to register these stocks at 1,290,593 bags. There was meanwhile a larger in volume 9,928 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 15,700 bags.

The commodity markets were mixed in trade yesterday but overall lacking any excitement, with the overall macro commodity index taking a marginally softer track for the day. The Natural Gas, Sugar, Cotton, Copper, Wheat, Soybean, Gold and Silver markets had a day of buoyancy, as had been the case for the Coffee markets that finally ended the day on a hesitantly steady note, while the Oil, Cocoa, Orange Juice and Corn markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.19% lower; to see this Index registered at 422.07. The day starts with the U.S. dollar steady and trading at 1.323 to Sterling and 1.102 to the Euro, while North Sea Oil is steady in early trade and trading at 44.90 per barrel.

The London and New York markets started the day yesterday taking a thinly traded positive track and maintained this positive note into the afternoon trade and with trading volumes remaining lacklustre in nature and even so later in the afternoon, when the more volatile New York market started to come under pressure to shed its drop back from its highs that had added 2.75 usc/Lb. in value, into modest negative territory and followed by a dip back towards par for the less aggressive London market. This set the track for the rest of the day and with the markets stuttering on towards a close to hesitantly steady end, with the markets ending the day either side of par. The London market ended the day on a modestly positive note but with only 16.7% of the earlier gains of the day intact, while the New York market ended the day on a modestly negative note and with 20% of the earlier losses of the day intact. This close to steady close and with the charts tending to look neutral at best does however provide for little in the way of inspiration and rather points to some degree of exhaustion within the markets, which might well encourage little better than a near to steady start for early trade today against the prices set yesterday, as follows:

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

JUL 1810 + 2
SEP 1818 + 2                                           SEP 146.85 – 0.15
NOV 1841 + 3                                         DEC 149.90 – 0.05
JAN 1857 + 2                                         MAR 152.70 – 0.05
MAR 1868 + 2                                        MAY 154.25 – 0.10
MAY 1882 + 2                                          JUL 155.50 – 0.15
JUL 1892 + 2                                             SEP 156.65 – 0.20
SEP 1905 + 2                                            DEC 158.20 – 0.30
NOV 1924 + 2                                         MAR 159.75 – 0.40
JAN 1924 + 6                                          MAY 160.55 – 0.40