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

Coffee Market Report

22 Jun 2015
The latest Commitment of Traders report from the New York arabica coffee market has seen the Non Commercial Speculative sector of this market increase their net short sold position within the market by 60.45% during the week of trade leading up to Tuesday 16th. June; to register a net short sold position of 12,096 Lots. This net short sold position which is the equivalent of 3,429,162 bags has most likely little changed but might have been marginally increased, over the period of mixed but overall negative trade which has since followed.

The respected Brazil analysts Safras & Mercado have estimated that by Tuesday last week and based on their new crop forecast figure of 50.4 million bags, that they estimate 36% of this new crop has so far been harvested. In this respect they estimate that approximately 73% of the new conilon robusta coffee crop has already been harvested, while approximately 21% of the new arabica coffee crop has so far been harvested.

Perhaps noticeable in terms of the fact that unlike the official Brazil forecasts that still talk the new crop lower, that now with seemingly reasonable volumes of new crop coffees already harvested and thus assisting to more accurately quantify green coffee outturn ratios from new crop coffee cherries, that Safras & Mercado still remain with their in excess of 50 million bags of new crop estimate. This being a factor that does perhaps provide further support to the host of other private trade and industry forecasts and the United States Department of Agriculture forecast, for a new crop that they foresee to be not only excess of 50 million bags but possibly in excess of 52 million bags. This latter USDA forecast more specifically, forecasting the new Brazil crop at 52.4 million bags.

Meanwhile the latest U.S. Department of Agriculture Foreign Agricultural Service overall coffee supply report has forecasted world coffee supply for the forthcoming October 2015 to September 2016 coffee year shall be 6,388,000 bags or 4.37% higher than the present coffee year, at a total of 152,651,000 bags. The report also indicates world coffee demand to be approximately 147.7 million bags and therefore, would indicate surplus supply for the coming coffee year.

It is noted that this latest UDA coffee supply figure is related to new crops coffees coming into platy for this coffee year and does not include inherited carryover producer and consumer markets, which would add well in excess of 30 million bags to the coffee supply for the coming coffee year. Thus even if one were to dispute the reports world coffee consumption figures that many others see to be in excess of 152 million bags per annum, the report tends to further fuel the prevailing bearish sentiment within the coffee markets.

The arbitrage between the markets has narrowed on Friday to register this at 49.68 usc/Lb., while this equates to a still attractive to roasters 38.19% price discount for the London robusta coffee market. This arbitrage continues to inspire some degree of consumer market roaster interest in robusta coffees, which assist to take some of the bite out of the comparatively firm arabica coffee prices.

The Certified washed Arabica coffee stocks held against the New York exchange were seen to increase by 3,234 bags on Friday; to register these stocks at 2,131,974 bags. There was meanwhile a larger in volume 7,419 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 56,407 bags.

The commodity markets ended the week on the back foot last week, with the overall macro commodity index taking a softer track for the day and to a degree further assisting to dampen spirts within many markets. The Natural Gas, Orange Juice, Wheat and Soybean markets nevertheless had a day of buoyancy, while the Oil, Sugar, Cocoa, Coffee, Cotton, Copper, Corn, Gold, Silver and Platinum markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.60% lower to see this Index registered at 418.32. The day starts with the U.S. Dollar tending softer and selling at 1.591 to Sterling and 1.139 to the Euro, while North Sea Oil is steady in early trade and is selling at 59.95 per barrel.

The London and New York markets started the day on Friday with early buoyancy, within an environment of thin trade. The markets retained this buoyancy into the afternoon trade, but with the New York market starting to come under pressure as the afternoon progressed and once volumes started to pick up with the arrival of the Americans upon the field of play, to reverse back into negative territory and with the London market moving back to start bouncing off par, while the New York market moved deeper into negative territory. As the afternoon progressed the New York market and with the added influences of the negative nature of the macro commodity index contributing, moved deeper into negative territory and with the London market finally succumbing and joining New York within negative territory. The London market continued to end the day on a softer note but having recovered 70.8% of the earlier losses of the day by the close, while the New York market likewise ended the day on a soft note but having also experienced a bounce of the lows of the day and having recovered 54.3% of the earlier losses of the day by the close. This softer overall close does little to inspire but perhaps the ability of both markets to post something of a partial recovery prior to the close on Friday and with a weaker U.S. dollar in play, might be supportive for a steady start for early trade today against the prices set on Friday, as follows:

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

JUL 1866 – 22                            JUL   127.15 – 1.55
SEP 1773 – 7                              SEP   130.10 – 1.85
NOV 1783 – 8                           DEC   133.90 – 1.80
JAN 1794 – 9                             MAR 137.60 – 1.75
MAR 1812 – 10                         MAY 139.75 – 1.80
MAY 1828 – 11                           JUL 141.55 – 1.85
JUL 1846 – 12                             SEP 143.20 – 1.65
SEP 1865 – 12                            DEC 145.35 – 1.50
NOV 1884 – 12                          MAR 147.55 – 1.35
JAN 1907 – 12                           MAY 148.95 – 1.30