|The heart was once again ripped out of the coffee markets in late trade yesterday, with modest volumes of producer selling coming into play and the speculative and fund sector of the markets looking to the weak nature of the Brazil Real and the Colombian Peso relative to the U.S. dollar, as reason to believe in medium to longer term free selling of their new crop coffees. Thus selling the markets short and with the charts once again looking negative for the New York market, which fuelled further selling within this volatile market.
There is meanwhile with the exception of the continued questions over the size of the new Brazil crop, little in the way of supportive fundamental news coming to support the coffee markets for the present. Rather the pending start in a few weeks’ time of the large new Colombia main crop and the larger new Indian crop and to followed by the end of the year by a potentially larger new overall Mexico and Central American crop, is tending to fuel bearish sentiment. Seemingly none of these crops and with the coffee already maturing on the trees are presently threatened by the mild El Nino phenomenon that is in play within the Pacific Ocean, which would if severe bring overly dry weather to Central America, overly wet weather to Colombia and Peru and overly dry weather to Indonesia.
Rather the El Nino can be foreseen to be a positive factor for the next 2016 Brazil crop, as it removes the threat of drought for south east Brazil and tends to indicate a good flowering is due in October and the ability of the trees to carry the crop. This being a new crop that is already being forecasted by some trade and industry players, to have a potential to exceed 60 million bags and one that would assist Brazil to start re-building its stocks for the follow on 2016/2017 coffee year.
There is however the prospects for the official post-harvest Brazil new crop report that shall be due out in the third week of next month and there is no doubt that this report shall tend to be conservative in nature and indicate a modest figure, which might restrain to a degree the bearish nature of the funds. This aside from the potential for increased consumer market buying activity in the coming month, post the summer holidays for the main northern hemisphere roasting industries.
The arbitrage between the markets narrowed yesterday to register this at 58.46 usc/Lb., while this equates to a 43.37% 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 2,651 bags yesterday; to register these stocks at 2,083,902 bags. There was meanwhile a larger in volume 11,499 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 28,104 bags.
The commodity markets had another overall soft day yesterday, to once again see the overall macro commodity index taking a sideways to softer track for trade yesterday. The Cocoa, Orange Juice, Corn, Gold and Silver markets had a day of buoyancy and the Natural Gas market was steady, while the Oil, Sugar, Coffee, Cotton, Copper, Wheat, Soybean and Platinum markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.41% lower to see this Index registered at 396.26. The day starts with the U.S. Dollar tending a little softer and selling at 1.567 to Sterling and 1.112 to the Euro, while North Sea Oil is near to steady in early trade and is selling at 45.25 per barrel.
The London and New York markets started the day yesterday with modest buoyancy and with the London market posting $ 11.00 per metric ton and the New York market posting 1.75 usc/Lb. gains and setting a positive track into the afternoon trade, but with both markets starting to come under pressure and moving back into negative territory as the afternoon progressed. This reversal in the fortunes of the market and with the soft nature of the overall macro commodity index also having an influence, attracted sell stops to accentuate the losses and what was initially a positive day, turned into a day of negativity. The London market continued to end the day on a soft note and with 78% of the losses of the day intact, while the New York market ended the day on a very negative note and with 92.4% of the earlier losses of the day intact. This close is a rather frightening one for the producers and might attract further price fixation selling and thus, one might expect to see a follow through steady to soft start for early trade today against the prices set yesterday, as follows:
LONDON ROBUSTA US$/MT NEW YORK ARABICA USc/Lb.
SEP 1669 – 62 SEP 131.15 – 4.15