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

Coffee Market Report

12 Aug 2015
The traditionally conservative state appointed official statistics instituted IBGE in Brazil has raised by 1.8% its new crop forecast from last month’s figure, to predict yesterday that the new Brazil coffee crop that is presently coming off its peak, shall be 44.17 million bags. This forecast that presumably takes into account the overall smaller bean factor for the new arabica coffee crop is significantly higher than the 40 million bags forecast that came forth from the producers association last Friday, but remains well below the many trade and industry forecasts over the past two months, which talked in terms of a new crop of over 50 million bags.

One might comment that with the IBGE traditionally around 10% below the reality of the crop, that this report would indicate a good potential that despite the smaller bean factor, that the new crop shall nevertheless top 48.5 million bags. A figure that would indicate a deficit of approximately 4 million bags in terms of new crop Brazil coffee supply for the next eleven months, but a figure that would nevertheless be with the assistance of carryover stocks, sufficient to guarantee Brazil coffee supply through to the next 2016 crop.

Meanwhile with the assistance of the extremely soft Brazil exchange rate and despite the still relatively soft prices of the reference prices of the London robusta coffee market, the Centre for Advanced Applied Economic Studies in Brazil has reported that the prevailing internal market prices for new crop Brazil conilon robusta coffees are 19% higher than the start of this year. In this respect and furthermore, the prevailing prices are now at their highest in terms of Brazil Reais for the last fourteen years.

Countering the many estimates that are coming forth from the private trade and industry players in Vietnam that with the combination of internal market farmer and exporter past crop stocks of mostly robusta coffees within the country are still close to 9 million bags, the official Vietnam Coffee and Cocoa Association have estimated that these stocks are rather a more modest 5 million bags. This association is however traditionally conservative and the figure does thus by nature, seemingly indicate that the figure might well at least exceed 8 million bags. While one would comment that with the new crop due to start being harvested in only two months’ time, even a figure of 5 million bags is excessive and as it is most probably much higher, that the country still has a lot of coffee to bring to the market in the coming weeks and this factor shall tend slow the upside potential of the related London robusta coffee market.

Meanwhile despite the rising value of the reference prices of the London market over the past few days there has been no surge of internal market selling within Vietnam, but this might be related to farmers and internal traders patiently awaiting new highs to value add their stocks. One would suspect however, that if the London market were to run out of steam and start to look toppy after the recent rally, that this would trigger some more aggressive selling of the stocks.

The arbitrage between the markets broadened yesterday to register this at 61.42 usc/Lb., while this equates to a 43.76% 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 decrease by 1,450 bags yesterday; to register these stocks at 2,094,593 bags. There was meanwhile a smaller in number 750 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 6,980 bags.

The commodity markets were mixed in trade yesterday and with many markets tending to run out of steam, following the surge over the past couple of days. This resulted in a softening of the overall macro commodity index, which contributed to sentiment and a softening in prices within many markets. The Sugar, Coffee, Orange Juice, Gold and Platinum markets had a day of buoyancy and the Cotton and Silver markets were steady, while the Oil, Natural Gas, Cocoa, Copper, Wheat, Corn and Soybean markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.69% lower to see this Index registered at 402.51. The day starts with the U.S. Dollar tending softer and selling at 1.557 to Sterling and 1.108 to the Euro, while North Sea Oil is near to steady in early trade and is selling at 47.60 per barrel.

The London and New York markets started the day yesterday with modest follow through buoyancy and with both markets adding to their value, as they entered the afternoon trade. This strength and with the charts positive inspired further support and with both markets making further gains, but with the New York market coming under profit taking and producer price fixation selling for a brief period during the afternoon and taking prices back to par, prior to attracting renewed support to regain its muscle for the day. The London market took a steadier track for the day and to end the day on a positive note and with 93.5% of the gains of the day intact, while the New York market likewise ended the day on a positive note and with 92.7% of the earlier gains of the day intact. This overall positive close and with the charts looking positive for the markets is likely to inspire a degree of confidence, but there might following the extremely high volumes of trade over the past couple of days be some degree of exhaustion setting in and one might expect to see only 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.

SEP 1725 + 32                                 SEP   137.20 + 3.70
NOV 1740 + 29                               DEC  140.35 + 3.80
JAN 1755 + 28                                MAR 143.65 + 3.75
MAR 1774 + 28                              MAY 145.75 + 3.75
MAY 1793 + 27                               JUL  147.80 + 3.85
JUL 1809 + 25                                 SEP  149.60 + 3.75
SEP 1827 + 23                                DEC  152.05 + 3.45
NOV 1846 + 23                              MAR 154.35 + 3.20
JAN 1865 + 23                               MAY 155.75 + 3.05
MAR 1880 + 23                               JUL 157.25 + 3.10