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


I. & M. Smith (Pty) Ltd.

Coffee Market Report

05 Oct 2015
The latest Commitment of Traders report from the New York arabica coffee market has seen the Non Commercial Speculative sector of this market decrease their net short sold position within the market by 12.86% during the week of trade leading up to Tuesday 29th. September; to register a net short sold position of 29,040 Lots. This net short sold position which is the equivalent of 8,232,711 bags has most likely been further decreased, following the period of mixed but overall more positive trade which has since followed.

While awaiting the final green coffee export figure from Honduras, the National Coffee Institute of Honduras have predicted that these exports shall contribute to the country’s exports for the October 2014 to September 2015 coffee year to being approximately 5.06 million bags, while they forecast that with the new crop now heading towards maturity that exports shall rise by 9% for this new October 2015 to September 2016 coffee year. In this respect the National Coffee Institute are forecasting exports for this new coffee year, to be approximately 5.52 million bags.

This rather positive forecast from Honduras and in terms of the new crop potential, is despite the recent evidence the negative dry weather effects of the prevailing El Nino phenomenon within the Pacific Ocean, which has brought with it drier weather for Central America. The drier conditions that have come with the El Nino having already had an impact upon crop in the lower altitude regions of Honduras and their neighbours in Central America, with evidence of lower production levels for many basic food crops.

In the meantime there are reports out of Indonesia of El Nino related drier weather conditions and with fears for partial drought for the last quarter of this year being voiced, with the Association of Coffee Exporters in Indonesia already talking about the possibility of a significantly lower new coffee crop for the coming year. In this respect on official from the association has voiced that should the dry weather continue, it could reduce the next year’s crop by as much as 35% and result in coffee production hitting a twenty six year low at around 7.5 million bags.

There have so far not been similar fears voiced by coffee officials in Colombia and Peru, who are most usually along with Indonesia very much in the front line of the negative effects of the El Nino phenomenon, but one might expect that with the El Nino now reality that there might soon be such reports coming to the fore. Thus there is the potential in the coming weeks for these weather related reports to start to impact upon speculative sentiment within the coffee markets, which might contribute to some degree of the presently relatively soft markets for the last quarter of this year.

The coffee districts in Vietnam are presently in receipt of rain conditions which shall need to come to a close for the start to the new harvest being triggered, so for the present there is no pressure upon the farmers and internal traders to start to make space to receive new crop coffees. Thus with the reference prices of the London robusta coffee market remaining relatively soft, the internal market price resistance for sales of past crop coffee stocks continues to inflate asking export price differentials and to slow the pace of Vietnam coffee sales and exports.

The second month arbitrage between the markets broadened on Friday, to register this at 55.55 usc/Lb., while this equates to a 43.62% 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 332 bags on Friday; to register these stocks at 1,985,591 bags. There was meanwhile a larger in volume 6,377 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 33,788 bags.

The commodity markets gained some degree of support within many markets on Friday, from the weakening of the value of the U.S. dollar and to see the overall macro commodity index take a positive track for the day. The Oil, Natural Gas, Sugar, Coffee, Copper, Corn, Soybean, Gold, Silver and Platinum markets had a day of buoyancy, while the Cocoa, Cotton, Orange Juice and Wheat markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.96% higher to see this Index registered at 391.97. The day starts with the U.S. Dollar tending softer and trading at 1.521 to Sterling and 1.123 to the Euro, while North Sea Oil is steady is showing a degree of buoyancy in early trade and is selling at 47.95 per barrel.

The London and New York markets started the day on Friday with some early buoyancy and with both markets taking a positive track into the afternoon trade, but with the New York market coming under pressure and dipping back briefly into negative territory for early afternoon trade. This negative pressure was however short lived and with the added influences of the softening U.S. dollar and the firming of the Brazil Real that slowed Brazilian selling along with the positive nature of the overall macro commodity index, both markets returned to a positive track for the rest of the day. The London market did however come off its highs late in the day but nevertheless ended the day on a positive note and with 72% of the earlier gains of the day intact, while the New York market ended the day on a very positive note and with 79.5% of the earlier gains of the day intact. This positive end for the week might well have some supportive influence for a hesitantly steady to buoyant start for early trade today against the prices set on Friday, as follows:


NOV 1578 + 2                                      DEC    124.30 + 3.55
JAN 1583 + 18                                     MAR   127.35 + 3.50
MAR 1597 + 17                                   MAY   129.50 + 3.55
MAY 1616 + 16                                    JUL    131.30 + 3.60
JUL 1636 + 16                                      SEP    132.80 + 3.55
SEP 1654 + 15                                      DEC   135.20 + 3.50
NOV 1673 + 15                                    MAR  137.50 + 3.50
JAN 1692 + 15                                     MAY  139.20 + 3.50
MAR 1710 + 15                                     JUL   140.95 + 3.55
MAY 1726 + 15                                     SEP   142.45 + 3.45