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


I. & M. Smith (Pty) Ltd.

Coffee Market Report

27 Aug 2015
The International trade house Volcafe have sharply reduced by 3.6 million bags or 6.94% their earlier in May new Brazil coffee crop forecast, to now estimate the nearly completed crop at 48.3 million bags. This number to include 32.6 million bags of arabica coffees and 15.7 million bags of conilon robusta coffees, with the comment that carryover stocks shall enable Brazil to continue to fuel both domestic market and export market demand through to the next 2016 crop, by which time farm and trade inventories shall be critically low.

In respect of the influence of these lower Brazil crop numbers and with E D & F Man estimating global coffee supply for the coming October 2015 to September coffee year at 149.6 million bags, they foresee that there shall be a coffee supply deficit for this coming coffee year of 3.5 million bags. This being in terms of global coffee stocks and so long as one can believe in a larger new crop for Brazil next year, not a frightening number for the consumer market industry buyers.

This latest Brazil forecast is very similar to the forecast from the likewise respected Neumann Kaffee Gruppe forecast for a new Brazil crop of 47.8 million bags, which is the number that they have remained with since June this year. Thus one might suggest with Volcafe joining the under 50’s club so to speak, that one might feel safe to start believing in a new Brazil crop of close to 48 million bags for this year and therefore, a deficit of approximately 4 million bags in terms of dedicated Brazil coffee demand.

The Brazil Agricultural Ministry Crop Supply Agency CONAB have reported that the countries private farm and trade coffee stocks as at the beginning of April this year had fallen to 14,369,000 bags, which was 5.6% lower than the same time last year. But a number that is still 70.73% higher than the beginning of April private stocks as at the same time in 2012, with the report further confirming that despite the deficit coffee crop for this year, that there shall be sufficient stocks to support domestic market and export market supply through to the next and potentially larger 2016 crop.

With the month of August export registrations in hand the General Statistics Office in Vietnam have estimated that the August coffee exports shall total approximately 1.5 million bags, which is below the earlier estimates by the countries traders, for exports of between 1.67 million and 2 million bags. This official forecast for August exports would bring the cumulative exports for the first eleven months of the present October 2014 to September 2015 coffee year, up to a relatively modest total of 19.53 million bags.

In the meantime the question remains as to what shall be the short term situation with the extensive stocks still held by farmers and internal market traders within Vietnam and with less than two months before new crop coffees start coming to the market. Many would speculate that with the need to make space for the forecasted larger new crop coffees that are soon due to be harvested, that they shall very soon have to bite the bullet and liquidate the stocks, even if not a very profitable price levels. Added to this and with Vietnam having registered a 3.62 billion U.S. dollar trade deficit for the first eight months of this year, one might think that there might even be some official pressure upon the local coffee farmers and internal traders to turn stocks into export dollars.

This issue of the potential for more aggressive selling and the resulting price fixation hedge selling of Vietnam robusta coffee stocks is something of a threatening cloud over the London market, which has to supress speculative confidence in the medium term fortunes for this market. Albeit that for the year so far and even presently so close to the new crop, the Vietnam farmers and internal traders have continued to hold firm.

The arbitrage between the markets broadened yesterday to register this at 48.94 usc/Lb., while this equates to a 40.05% 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 1,110 bags yesterday; to register these stocks at 2,088,040 bags. There was meanwhile a similar in volume 1,300 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 23,923 bags.

The commodity markets had an overall softer day’s trade yesterday with the firmer U.S. dollar tending to add some negative pressure within many markets, to see the overall macro commodity index taking a softer track for the day. The Brent Oil, New York arabica Coffee, Orange Juice, Soybeans and Platinum markets had a day of buoyancy and the Natural Gas and London robusta coffees were steady, while the U.S. Oil, Sugar, Cocoa, Cotton, Copper, Wheat, Corn, 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 0.74% lower to see this Index registered at 382.92. The day starts with the U.S. Dollar near to steady and selling at 1.549 to Sterling and 1.135 to the Euro, while North Sea Oil is showing modest buoyancy in early trade and is selling at 42.40 per barrel.

The London market opened marginally softer yesterday, while the New York market opened with immediate buoyancy, to see the markets enter the afternoon trade with the New York market having added more value and he London market moving back to par. As the afternoon progressed the New York market continued to maintain a positive track, but with the London market once more moving back into negative territory. There was a spell of added value for the New York market and accompanied by London moving back above par, but it was short lived and New York moved back into more modest positive territory, while London move back to just below par. The markets took an erratic track for the rest of the day to see the London market close on a steady note, while the New York market ended the day on a positive note and with 57.9% of the earlier gains of the day intact. This relatively steady end to the day might well inspire a follow through steady start for early trade today against the prices set yesterday, as follows:


SEP 1581 – 1                                     SEP    118.70 + 1.65
NOV 1615 unch                                 DEC  122.20 + 1.65
JAN 1629 – 4                                     MAR 125.60 + 1.55
MAR 1648 – 6                                   MAY 127.80 + 1.55
MAY 1670 – 6                                     JUL 129.90 + 1.50
JUL 1692 – 6                                       SEP  131.90 + 1.40
SEP 1714 – 7                                      DEC  134.70 + 1.30
NOV 1735 – 6                                    MAR 137.45 + 1.25
JAN 1756 – 5                                     MAY 139.20 + 1.15
MAR 1771 – 5                                     JUL 140.90 + 1.00