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


I. & M. Smith (Pty) Ltd.

Coffee Market Report

16 Sep 2015
The Green Coffee Association of the U.S.A. have announced that the countries port warehouse stocks increased by 239,814 bags or 4.08% during the month of August, to register these stocks at 6,123,163 bags at the end of the month. These stocks do not of course include the in transit bulk container coffees or the onsite roaster inventories, which with an approximate combined U.S.A. and Canadian weekly consumption that is fed by these stocks of 500,000 bags per week, would conservatively have been at least 1 million bags.

Therefore if one is to consider the additional unreported stocks and look to end August stocks in North America of at the very least 7.12 million bags, it would have equated to in excess of 14 weeks of roasting activity and still a safe reserve, in terms of the potential for a steady flow of new crop coffees from Brazil and Indonesia that are already due to come to the market and soon followed, by the new crop coffees from Colombia and Vietnam. These coffees to be followed by the end of the year, buy the impact of larger new crops and fresh coffees, from Central America and India. Crops that in terms of short term volume availability and competition to find a home, shall tend to limit the possibilities for individual producers to show strong price resistance to the price dictates of the still relatively soft terminal markets.

The Vietnam Customs Authority have reported that the countries coffee exports of mostly robusta coffees for the month of August declined by 13.6% from the previous months exports, to register coffee exports for the month of approximately 1.54 million bags. This relatively modest volume and following many months of modest export volumes, has contributed to the countries cumulative coffee exports for the first eight months of this year to being 32.2% lower than the same period in the previous year, at a total of 14,656,667 bags.

The decline in export volumes from Vietnam is of course no reflection of problems with their last crop, which has been pegged by most trade and industry players to have been well in excess of 26 million bags and with carryover stocks into this last harvest, of approximately 3 million bags. Thus the modest export volumes for the year so far that are related to internal market price resistance that has slowed export sales and continue to do so, further confirms that the internal market and exporter stocks remain at around 7 million to 8 million bags and this ahead the next and forecasted much larger new crop, which is due to start being harvested in about five to six weeks’ time and to start peaking by the second half of November.

The question remains as to what impact this new crop shall have upon the farmers and internal traders who hold most of the retained stocks in Vietnam, as they shall need to find space to store new crop coffees, as they shall have to raise the finance for the carry of these new crop coffee stocks. There is no doubt that so far the banks in Vietnam have been friendly in terms of the finance of the internal traders in Vietnam but there has to be some limit as to how much finance they are prepared to forward to these traders and particularly so with a new crop of in excess of 29 million bags that shall mostly come in during the last quarter of this year, which will soon dictate a the requirement for a considerable amount of finance.

Thus one at a guess might suspect that no matter what the price levels might be for the reference prices of the London market, that there has to be a point where at least some of the internal traders shall start to crack and look to liquidate stocks. The general perception is that might only be in the new year, but there is a chance with pressure from the banks that it might even be sooner and one might even start to see the asking differentials for Vietnam coffee exports start to narrow before the end of the year.

The arbitrage between the markets narrowed yesterday to register this at 47.21 usc/Lb., while this equates to a 39.77% 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 increase by 1,508 bags yesterday; to register these stocks at 2,045,070 bags. There was meanwhile a larger in volume 1,875 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 44,831 bags.

The commodity markets remained mixed and somewhat lacklustre in trade yesterday and with many players awaiting tomorrows decision from the Federal Reserve Bank of the U.S.A., as to the where to go with the dollar interest rate. The renewed muscle of the U.S. dollar, also had some negative impact upon the value of many markets. The Oil, Copper, Soybean and Platinum markets had a day of buoyancy, while the Natural Gas, Sugar, Cocoa, Cotton, Orange Juice, 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 0.15% lower to see this Index registered at 394.94. The day starts with the U.S. Dollar steady and trading at 1.534 to Sterling and 1.127 to the Euro, while North Sea Oil is near to steady in early trade and is selling at 46.40 per barrel.

The London market started the day yesterday on a near to steady note and the New York market with modest buoyancy, with the New York market attracting more value into the afternoon trade, while the London market followed suit and moved into positive territory. However as the afternoon progressed and with the Americans coming onto the field of play the New York market started to come under pressure and both markets soon slipped back into negative territory. From there on the trade was lacklustre and thin and taking a sideways track, through to the end of the day. The London market ended the day on a softer note and with 47.8% of the losses of the day intact, while the New York market ended the day on a soft note and with 61.2% of the earlier losses of the day intact. This softer close and with the news of rising stocks in the U.S.A. and the firmer U.S. dollar is likely not to inspire confidence and one might expect to see only a near to steady start for early trade today against the prices set yesterday, as follows:


SEP 1574 – 8                                     SEP     115.50 – 1.50
NOV 1576 – 11                                 DEC    118.70 – 1.50
JAN 1589 – 11                                  MAR   122.05 – 1.60
MAR 1605 – 9                                  MAY   124.30 – 1.65
MAY 1625 – 9                                    JUL   126.25 – 1.75
JUL 1644 – 9                                      SEP    128.15 – 1.75
SEP 1664 – 7                                     DEC    130.85 – 1.75
NOV 1684 – 7                                   MAR   133.50 – 1.75
JAN 1704 – 7                                    MAY   135.35 – 1.80
MAR 1726 – 7                                    JUL    137.20 – 1.90