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


I. & M. Smith (Pty) Ltd.

Coffee Market Report

10 Dec 2018

The latest Commitment of Traders report from the London robusta coffee market has seen the Speculative Managed Money sector of this market move back into a net short sold position within the market during the week of trade leading up to Tuesday 4th. December; to register a short-sold position of 1,126 Lots on the day. This net short position which is the equivalent of 187,667 bags has most likely been further extended, following the softer track that the market took for the second half of last week.

The Colombian Coffee Federation have voiced their concerns on Friday, over the negative effects of the prevailing soft nature of the reference prices of the New York market, upon the ability of their farmers to remain profitable and to afford the necessary farm inputs to maintain yields. The report estimates that the present internal market farm gate prices that are dictated by the available export prices from the consumer market, are already below cost of production for many farmers.

They note that there is a state coffee farm subsidy scheme available, but this would only kick in at a time that internal market prices fall a further 5.53% from the present internal market price levels, which leaves many farmers in a very difficult situation. Making them fear that the lack of unaffordable inputs might impact on yields for many farmers and ultimately, make it difficult for Colombia to maintain annual crops of around 14 million bags.

This price problem is of course not unique to Colombia but is a problem for the relatively high cost washed arabica coffee farmers globally and with most countries, not having any state assistance trigger levels to come into play and provide support. Which with the coffee market fundamentals presently pointing towards surplus supply and relatively soft prices for the coming year, is most likely going to have some longer-term impact upon global washed arabica coffee supply for 2020.

The March 2019 to March 2019 contracts arbitrage between the London and New York markets narrowed on Friday, to register this at 33.61 usc/Lb., while this equates to 32.29% price discount for the London Robusta coffee market.

The Certified washed Arabica coffee stocks held against the New York exchange were seen increase by 999 bags Friday; to register these stocks at 2,453,940 bags. There was meanwhile a larger in number 3,971 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 86,791 bags.

The commodity markets had an overall positive day on Friday, to see the overall macro commodity index on a positive track for the day. The Oil, Natural Gas, Sugar, Cocoa, Cotton, Copper, Wheat, Corn, Soybean, Gold and Silver markets ended the day on a positive note, while the Coffee markets ended the day on a negative note. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 1.28% higher; to see this index registered at 410.34. The day starts with the U.S. Dollar near steady and trading at 1.274 to Sterling, at 1.143 to the Euro and with the dollar buying 3.907 Brazilian Real.

The London and New York markets started the day on Friday with immediate buoyancy, to take a positive track into the early afternoon trade. As the afternoon progressed though both markets started to come under selling pressure and slipped back into negative territory and with speculative selling in terms of negative over supply coffee fundamentals having a particular influence within the New York market, which experienced heavier losses for the day.

The London market ended the day on a negative note and with 818% of the earlier relatively modest losses of the day intact, while the New York market likewise ended the day on a negative note and with 88.1% of the earlier losses of the day intact. This close does little to inspire confidence and is likely to set the markets for at best a steady start for early trade today, against the prices set on Friday, as follows:

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

                                                                        DEC 98,80 – 1.85
JAN 1533 – 12                                                MAR 104.10 – 1.85
MAR 1554 – 9                                                MAY 107.20 – 1.90
MAY 1567 – 10                                               JUL 109.90 – 1.90
JUL 1583 – 9                                                   SEP 112.55 – 1.85
SEP 1599 – 9                                                   DEC 116.20 – 1.85
NOV 1616 – 7                                                 MAR 119.85 – 1.85
JAN 1630 – 7                                                  MAY 122.30 – 1.85
MAR 1642 – 8                                                 JUL 124.70 – 1.85
MAY 1663 – 7                                                 SEP 127.05 – 1.65
JUL 1675 – 7                                                   DEC130.10 – 1.50