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

Coffee Market Report

14 Mar 2018

The coffee markets remained devoid of any striking fundamental news and under the cloud of no news is good news, in terms of the forecast for rising and surplus coffee supply for the second half of the year and for the next October 2018 to September 2019 coffee year.

The present lack of either a La Niña or El Niño phenomenon and therefore neutral conditions developing within the Pacific Ocean, there would appear to be no reason to fear negative for coffee weather conditions within the Pacific rim producer countries. Likewise, further afield, as these phenomena do have a broader global influence and adding to the present lack of speculative concern over medium terms weather threats. Albeit that there is still the Brazil June and July frost season still to come, but this is a relatively low risk factor and has in recent years not really attracted speculative and industry precautionary buying support.

All of this contributes to a continued lacklustre physical coffee market, but while many producers carry on with some degree of price resistance against the negative influences of the terminal markets, most consumer industries remain complacent and patient in terms of their buying activity. The latter sector of the market alike the speculative and fund sectors of the markets, seemingly also confident that the larger new Brazil crop shall in a few months’ time come to the fore to contribute to a soft end to the year for the coffee markets. Albeit that none would disagree, that this is proving to be crippling for the majority of the producers.

The May 2018 to May 2018 contracts arbitrage between the London and New York markets broadened yesterday, to register this at 41.58 usc/Lb., while this equates to 34.21% price discount for the London Robusta coffee market.

The Certified washed Arabica coffee stocks held against the New York exchange were seen to increase by 6,200 bags yesterday; to register these stocks at 1,918,887 bags. There was meanwhile a larger in number 6,545 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 36,516 bags.

The Certified Robusta coffee stocks held against the London exchange were seen to decrease by 76,500 bags or 5.3% over the week of trade leading up to Monday 12th. March, to see these stocks registered at 1,366,500 bags, on the day.

The commodity markets were mixed in trade yesterday but despite the U.S. dollar losing a little of its muscle during the day, the overall macro commodity index was somewhat flat for the day. The Natural Gas, New York arabica Coffee, Copper, Corn, Soybean, Gold and Silver markets had a day of buoyancy, while the Oil, Sugar, Cocoa London robusta Coffee, Cotton, Orange Juice and Wheat markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.06% higher; to see this index registered at 430.19. The day starts with the U.S. Dollar near to steady and trading at 1.399 to Sterling, at 1.241 to the Euro and with the dollar buying 3.260 Brazilian Real, while North Sea Oil is steady and is selling at US$ 64.40 per barrel.

The London market started the day on a softer note yesterday and the New York market started the day marginally south of par and to see the New York market soon move marginally north of par and the London market back to par, for the early afternoon trade. As the afternoon progressed both markets added more value but with the gains short lived for the London market that came under pressure and slipped back to par and finally to south of par, in the later afternoon trade. In the meantime, the New York market had attracted short covering support and with buy stops being triggered to accelerate the gains, to move higher into positive territory for the second half of the day’s trade.

The London market ended the day on a modestly negative note and with 66.7% of the earlier losses of the day intact, while the New York market ended the day on a positive note, with 77.8% of the earlier gains of the day intact. This close and despite the good performance shown within the volatile New York market is not convincing and one might think that there shall be another cautious and hesitant near to steady start for early trade today, against the prices set yesterday, as follows:

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

MAR 1815 – 6                                                 MAR 120.45 + 2.30
MAY 1763 – 6                                                 MAY 121.55 + 2.10
JUL 1786 – 5                                                   JUL 123.80 + 2.10
SEP 1787 – 4                                                   SEP 125.95 + 2.05
NOV 1789 – 1                                                 DEC 129.30 + 2.00
JAN 1792 + 2                                                  MAR 132.80 + 2.00
MAR 1801 + 2                                                 MAY 135.05 + 2.00
MAY 1813 + 2                                                JUL 137.00 + 2.00
JUL 1828 + 3                                                  SEP 138.70 + 2.00
SEP 1845 + 3                                                  DEC 141.25 + 2.00