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

Coffee Market Report

17 May 2018

The respected United States Department of Agriculture USDA Global Agricultural Information Network have reported that the presently being harvested over April 2018 to August 2018 Peruvian new crop of fine washed arabica coffees, shall be 200,000 bags or 4.88% larger than the previous crop, at a total of 4.3 million bags. While the report indicated domestic consumption at only a relatively modest 180,000 bags thus releasing most of the new crop coffee to enter the consumer markets alongside the steady supply of fine washed arabica coffees from Colombia and the still fair volumes of unsold new crop Central American coffees, to add to the prevailing bearish sentiment within the related New York market.

The report does meanwhile highlight that Peru has approximately 360,000 hectares of harvestable coffee that that the anticipated average yield shall be a relatively modest 716 Kgs. per hectare, which is well below the potential from the coffee farms. A factor that would indicate that as an when international coffee market prices improve and can allow the countries coffee farmers to invest further into increased inputs and better agricultural practices, that there is potential for a significant longer term increase in Peru coffee production and supply. As has been experienced over the past few year, in Honduras.

The Colombian Government in support of the country’s Coffee Federation and the coffee farmers, has announced that they shall invest the equivalent of a further 13.5 million U.S. dollars this year, towards the countries ongoing renovation of coffee farms. These funds they anticipate shall allow for the replacement of aged trees with new disease resistant and higher yielding trees, on 50,00 hectares of coffee farms. This program having been run for some years now and the success of it is very evident, in the now good volumes of Colombian coffee that are being produced.

The Indonesian robusta coffee fly crop is tailing off but with good weather conditions for the development of the new main robusta coffee crop that usually picks up in volume only in July, there are forecasts that it could start a little earlier and to see the harvest in full swing by next month. The country does however have a vibrant and high volume domestic coffee market and it would still seem that only when this market is covered that there shall be more aggressive selling and with the asking export prices starting to become competitive within the international markets, which is unlikely to be the case until August this year.

The July 2018 to July 2018 contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 38.51 usc/Lb., while this equates to 32.83% price discount for the London Robusta coffee market.

The Certified washed Arabica coffee stocks held against the New York exchange were seen to decrease by 4,625 bags on yesterday; to register these stocks at 1,990,893 bags. There was meanwhile a smaller in number 458 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 64,147 bags.

The commodity markets were mixed in trade yesterday, to see the overall macro commodity index taking a modestly positive track for the day. The Brent Oil, Sugar, Cocoa, Coffee, Cotton, Copper, Orange Juice and Silver markets ended the day with some degree of buoyancy and the Gold market ended the day on a steady note, while the U.S. Oil, Natural Gas, Wheat, Corn and Soybean markets ended the day on a softer note. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.11% higher; to see this index registered at 433.23. The day starts with the U.S. Dollar steady and trading at 1.353 to Sterling, at 1.180 to the Euro and with the dollar buying 3.676 Brazilian Real, while North Sea Oil is showing a degree of early buoyancy and is selling at US$ 79.50 per barrel.

The London market started the day yesterday with early buoyancy and with the markets maintaining this stance, into the early afternoon trade. As the afternoon progressed the New York market and with sentiment pressured by the threat of a weaker Brazil real encouraging selling from Brazil, the New York market fell back to trade around par, while the London market maintained some of its buoyancy and with the New York market recovering in late trade.

The London market ended the day on a positive note but with only 42.9% of the earlier gains of the day intact, while the New York market ended the day on a likewise positive note and with 58.3% of the earlier modest gains of the day intact. This close and its indication that there is some resistance that limits the downside for the markets, might well inspire a degree of confidence and perhaps bring to the fore some degree of industry price fixation activity. Thus, we would think that the markets are possibly due for a steady start for early trade today, against the prices set yesterday, as follows:

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

MAY 1727 + 9                                                MAY 113.25 + 0.35
JUL 1737 + 9                                                   JUL 117.30 + 0.35
SEP 1727 + 8                                                  SEP 119.50 + 0.25
NOV 1731 + 9                                                DEC 123.00 + 0.20
JAN 1733 + 7                                                  MAR 126.50 + 0.20
MAR 1743 + 7                                                MAY 128.80 + 0.20
MAY 1756 + 7                                                 JUL 131.00 + 0.20
JUL 1769 + 7                                                   SEP 132.95 + 0.15
SEP 1781 + 6                                                   DEC 135.60 + 0.10
NOV 1793 + 4                                                 MAR 138.20 + 0.05