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

Coffee Market Report

02 Oct 2015
With the month of September passed, the National Coffee Institute in Costa Rica have reported that the country’s coffee exports for the month were 8,697 bags or 29.82% higher than the same month last year, at a total of 37,864 bags. This improved performance does not however counter the number of prior months with relatively modest exports and the countries cumulative exports for the October 2014 to September 2015 coffee year are 85,732 bags or 6.87% lower than the previous coffee year, at a total of 1,161,995 bags.

The preliminary coffee export figures from Brazil for the month of September have been announced with coffee exports for the month reported to have been 155,418 bags or 5.62% higher than the same month last year, at a total of 2.92 million bags. This rise in exports for the month is despite the negative influences of the soft reference prices of the international coffee market, which has been countered by the steady devaluation of the Brazil Real that has lost 38% of its value against the U.S. dollar over the past year. The Real is in this respect, presently trading at 4.00 to the dollar.

Meanwhile in terms of the forthcoming 2016 Brazil crop and following spells of relatively good rains for the month of September, the forecasts are for another cold front to enter Brazil during next week and to bring with it further rains for most of the main south east Brazil coffee districts. Thus for the present there are no threatening climatic issues for Brazil and so long as this remains the case over the next six months, one would expect to foresee a much larger new crop due for the coming year.

Despite the significantly high past crop robusta coffee stocks that are being held by farmers and internal traders in Vietnam, the soft prices of the reference prices of the London market continues to inspire price resistance and slow sales. Albeit that there has to be some pressure upon the holders of these stocks in the medium term, with the advent of the start of the new crop harvest in a couple of weeks’ time. Thus there are conflicting forecasts in terms of Vietnam coffee exports for the month of October which vary between a low 1.33 million bags and as high as 2.33 million bags, which is very much related to the price dictates of the London market through the month, which would influence the internal market selling activity.

With the month of September passed the Government trade authorities within Indonesia’s main robusta producing island of Sumatra have reported that the islands robusta coffee exports for the month of September were 2,651 bags or 0.55% lower than the same month last year, at a total of 482,820 bags. This steady performance follows the rising robusta export volumes for the previous seven months and contributes to the cumulative robusta coffee exports from Sumatra for the October 2014 to September 2015 coffee year to being 1,106,841 bags or 30.84% higher than the previous coffee year, at a total of 4,696,081 bags.

The second month arbitrage between the markets broadened yesterday, to register this at 52.86 usc/Lb., while this equates to a 42.68% 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 decrease by 5,522 bags yesterday; to register these stocks at 1,985,259 bags. There was meanwhile a smaller in volume 2,630 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 40,165 bags.

The commodity markets remain under some pressure from the dismal economic figures and forecasts out of China, which continues to impact negatively upon demand. As does the muscle of the U.S. dollar, likewise dampen spirits within many markets. The Sugar, London robusta Coffee, Cotton, Wheat, Corn and Silver markets had a day of buoyancy and the Gold and Orange Juice markets were near to steady, while the Oil, Natural Gas, Cocoa, New York arabica Coffee, Copper, Soybean and Platinum markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.19% lower to see this Index registered at 388.24. The day starts with the U.S. Dollar showing some buoyancy and trading at 1.514 to Sterling and 1.118 to the Euro, while North Sea Oil is steady in early trade and is selling at 47.20 per barrel.

The London and New York markets started the day yesterday on a softer note, but with both markets recovering and taking a positive track in early afternoon trade. The recovery was however short lived for the New York market and with the negative influences of the overall macro commodity index and the weak Brazil Real coming to the fore, the market fell back into negative territory. The London market was not however as severely influenced and took something of a sideways track with value moving either side of par through the day, while the New York market did manage to claw back some of its losses as the day progressed. The London market continued to end the day on a modestly positive note and with only 12.5% of the gains of the day intact, while the New York market ended the day on a modestly negative note and having recovered 75% of the earlier losses of the day by the close. This close does little to inspire confidence and one might expect to see a hesitant and possibly only near to steady start for early trade today, against the prices set yesterday, as follows:

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

NOV 1556 – 1                                      DEC    120.75 – 0.60
JAN 1565 + 1                                       MAR   123.85 – 0.55
MAR 1580 + 2                                     MAY   125.95 – 0.55
MAY 1600 + 2                                       JUL   127.70 – 0.60
JUL 1620 + 2                                         SEP    129.25 – 0.65
SEP 1639 + 3                                         DEC   131.70 – 0.70
NOV 1658 + 2                                       MAR  134.00 – 0.75
JAN 1677 + 2                                        MAY  135.70 – 0.75
MAR 1695 + 2                                        JUL   137.40 – 0.75
MAY 1711 + 2                                        SEP   138.90 – 0.70