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

Coffee Market Report

10 Aug 2015
The latest Commitment of Traders report from the New York arabica coffee market has seen the Non Commercial Speculative sector of this market decrease their net short sold position within the market by 16.25% during the week of trade leading up to Tuesday 4th. August; to register a net short sold position of 24,300 Lots. This net short sold position which is the equivalent of 6,888,942 bags has most likely been since reduced again, over the period of mixed but overall more positive short covering trade which has since followed.

The Brazil Coffee Exporters Association have reported that the country exported 204,258 bags or 7.57% less coffee in July this year, compared to the same month last year, to see green coffee exports for the month at 2,494,489 bags. Similarly the country exported 40,137 or 12.06% less bags of coffee in the form of value added soluble coffees calculated in terms of their green coffee equivalent, to register these exports at 292,579. Therefore the overall coffee exports for the month were 244,395 bags or 8.06% lower for the month, at a total of 2,787,068 bags.

This lower performance was however expected, as the past couple of months have experienced some degree of internal market price resistance, which has buoyed asking differentials for new business on the part of the exporters of arabica coffees. This has likewise slowed consumer market buying activity and thus lowered the volumes of new short term export business, while exporters have concentrated more on the cover of their short term forward export commitments, rather than putting new business on the books and one might expect that this scenario shall continue for the month of August.

Meanwhile in terms of value the coffee exports for the month of July were 111.71 million U.S. dollars or 19.71% lower than the same month last year, at a total of 455.12 million U.S. dollars. However if one is to look to the value of the Brazil Real that was trading in a range of around 2.2138 to the U.S. dollar in July last year as opposed to a range of around 3.1212 in July this year, the value of exports for July this year and despite the lower volume of exports was in terms of local currency 165.67 million Reais or 13.2% higher than the same month last year, at a total of 1,420.52 million Reais. Thus illustrating that in terms of the significantly softer exchange rate, that it is doing much to take the bite out of the fact that the Brazil coffee farmers are presently selling into a soft international coffee market.

The National Coffee Council of Brazil which is an association that represents the producers, has with the new crop now peaking, forecasted on Friday that this new crop shall be significantly below the host of trade and industry forecasts that exceed 50 million bags, at a total that shall only be close to 40 million bags. This lower figure they reported and one that they relate to the problem of the declining percentage of bolder bean arabica coffees from the new crop, shall nevertheless with the carryover stocks at hand, be sufficient to cover domestic market and export market demand for the foreseeable future. This report was somewhat supportive for market sentiment on Friday, albeit that many would suggest that the figure is so low that it might be somewhat market manipulative in nature.

The arbitrage between the markets broadened on Friday to register this at 54.60 usc/Lb., while this equates to a 41.73% price discount for the London robusta coffee market. This arbitrage remaining relatively attractive to roasters in comparison to arabica coffee prices, but is perhaps due to widen further in time and when Vietnam stocks start to impact upon the fortunes of the London market.

The Certified washed Arabica coffee stocks held against the New York exchange were seen to increase by 88 bags on Friday; to register these stocks at 2,096,593 bags. There was meanwhile a larger in number 5,500 bags decline to the number of bags pending grading for this exchange; to register these pending grading stocks at 180 bags.

The Certified Robusta coffee stocks held against the London market are seen to have Increased by 58,167 bags or 1.74% over the two weeks of trade leading up to Monday 3rd. August, to register these stocks at 3,399,333 bags. This modest increase was to be expected as they reflect the limited volumes of robusta coffees coming out of Vietnam for the present, as a result of the internal market price resistance within the country that is restraining export volumes for the present.

The commodity markets were mixed in trade on Friday, but with the macro commodity index tending to show a degree of buoyancy for the day. The Cocoa, Coffee, Orange Juice, Wheat, Corn, Soybean, Gold, Silver and Platinum markets had a day of buoyancy and the Natural Gas market was steady, while the Oil, Sugar, Cotton and Copper had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.40% higher to see this Index registered at 399.26. The day starts with the U.S. Dollar steady and selling at 1.549 to Sterling and 1.097 to the Euro, while North Sea Oil is near to steady in early trade and is selling at 47.30 per barrel.

The London and New York markets opened the day on Friday on a steady note and with both markets picking up value into the afternoon trade, with the New York market leading the way and attracting short covering buying activity to trigger a modest rally and to see both markets taking a positive stance for the rest of the day’s trade. The London market continued to end the day on a positive note and with 75.9% of the gains of the day intact, while the New York market ended the day on a likewise positive note and with 78.7% of the earlier gains of the day intact. This positive close is likely to inspire cautious confidence and set the markets for a steady start for early trade today against the prices set yesterday, as follows:

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

SEP 1661 + 21                                 SEP   127.80 + 3.55
NOV 1681 + 22                               DEC  130.85 + 3.50
JAN 1696 + 21                                MAR 134.25 + 3.50
MAR 1716 + 21                              MAY 136.40 + 3.50
MAY 1737 + 21                                JUL 138.45 + 3.45
JUL 1758 + 21                                  SEP  140.45 + 3.45
SEP 1779 + 21                                 DEC  143.25 + 3.45
NOV 1797 + 19                               MAR 145.85 + 3.35
JAN 1815 + 16                                MAY 147.50 + 3.30
MAR 1830 + 16                                 JUL 149.05 + 3.50