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


I. & M. Smith (Pty) Ltd.

Coffee Market Report

27 Mar 2019

While there is some degree of confidence within the international trade and industry that Brazil is due a good-sized overall coffee crop for this year, which has been inspiring bearish sentiment within the speculative sectors of the markets, there remains uncertainty in terms of the prospects for the new crops from Mexico and the Central American producer bloc. These crops starting at the lower altitudes to be harvested in October and with the harvest season carrying on during the first quarter of the coming year.

There have been many reports of farmers and particularly the lower altitude farmers, whose coffees sell at lower values, significantly reducing their now unaffordable inputs towards the development of the new crop. Some farmers reported to be almost abandoning their crops, in terms of providing absolutely no fertiliser and chemical inputs. These reports indicating that it is not only the lower altitude farmers and depending on the countries and districts that are reacting to the low prices in such a manner, but also even some of the relatively better value higher altitude farmers.

Aside from the reduction of farm inputs there are some farmers who have been more aggressive in the number of older trees that they have pruned post the recently completed harvest, as they foresee these trees requiring less input costs, which will reduce the number of productive trees. There is though no clarity as of yet as to the overall effect that these actions shall have in terms of production number for the next harvest from the region, but there is a possibility that this important fine washed arabica producer bloc of in excess of 20 million bags per annum, shall experience at least a 10% lower crop from the new harvest. Perhaps even a higher decline, should the reference prices of the New York terminal market remain within the present trading range, into the third quarter of this year.

One might thus speculate that this decline added to a probable 3 million bags growth in global consumption through the year and to a 5 million bags smaller Brazil crop, might result in a small deficit coffee supply due for the coming October 2019 to September 2020 coffee year. But a deficit that for the short term and into the first half of 2020, that shall be countered by the significant carry over origin and consumer market stocks, into this forthcoming new coffee year. A factor that might later in the year, bring to the fore some speculative fund short covering activity for the terminal markets and a degree of price recovery.

The May to May contracts arbitrage between the London and New York markets broadened yesterday, to register this at 26.86 usc/Lb., while this equates to 28.17% price discount for the London Robusta coffee market.

The Certified washed Arabica coffee stocks held against the New York exchange were seen to decrease by 5,209 bags yesterday; to register these stocks at 2,497,827 bags. There was meanwhile, a similar in number 5,165 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 18,307 bags.

The certified Robusta coffee stocks held against the London exchange were seen to decrease by 4,667 bags or 0.24% over the week of trade leading up to Monday 25th. March, to see these stocks registered at 1,954,500 bags.

The commodity markets were mixed in trade yesterday, to see the overall macro commodity index taking something of a sideways track for the day. The Oil, Sugar, Cocoa, Coffee, Cotton and Copper markets ended the day on a positive note and the Corn market on a near to steady note, while the Natural Gas, Orange Juice, Wheat, Soybean, Gold and Silver markets ended the day on a softer note. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.05% higher; to see this index registered at 411.89. The day starts with the U.S. Dollar steady and trading at 1.319 to Sterling, at 1.126 to the Euro and with the US Dollar buying 3.877 Brazilian Real.

The London and New York markets started the day yesterday trading on a marginally positive note and with both markets remaining on the positive side of par, into the early afternoon trade. This was followed by the markets posting further but relatively modest gains for the rest of the day’s mostly sideways trade, through to a positive close.

The London market ended the day on a positive note and with 78.6% of the modest gains of the day intact, while the New York market ended the day on a likewise positive note and with 68.7% of the earlier gains of the day intact. This steady close might bring with it some degree of confidence and to set the markets for a follow through steady start for early trade today, against the prices set yesterday, as follows:


MAY 1510 + 11                                           MAY 95.35 + 1.10
JUL 1512 + 9                                               JUL 97.95 + 1.05
SEP 1525 + 9                                               SEP 100.65 + 0.95
NOV 1541 + 9                                             DEC 104.55 + 1.00
JAN 1558 + 8                                               MAR 108.35 + 1.00
MAR 1576 + 8                                             MAY 110.80 + 1.00
MAY 1596 + 8                                             JUL 113.05 + 0.95
JUL 1615 + 8                                               SEP 115.20 + 0.90
SEP 1633 + 8                                               DEC 118.35 + 0.85
NOV 1651 opening                                     MAR 121.50 + 0.80