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

Coffee Market Report

23 Oct 2015
There is apparently a degree of uncertainty over the intensity of the forthcoming rains due over the main South East Brazil coffee districts for the coming week as while forecasts do generally agree that rains are due, there remain concerns that these rains have to be seen to be believed. These concerns are causing some degree of reluctance on the part of farmers in terms of selling new crop coffee stocks, as many are seemingly holding back to see if there might be some added value coming to the fore from the reference prices of the New York market should there be renewed concerns for the next 2016 crop coming to the fore.

Thus while the markets have experienced a relatively soft week so far, the internal selling activity within Brazil has remained lacklustre and restrained. With farmers and cooperatives holding back to see what the coming week shall bring in terms of weather, while the short sold exporters having to work hard to cover their commitments. One might presume that this lack of selling aggression shall continue for today and remain the case, until there is some clarity over the rains that are due for the last week of the month and through to the first week of the coming month.

The softening this week of the reference prices of the London market and following some good sales of past crop stocks last week against the higher market that prevailed at the time, has likewise seen a return to price resistance and slow internal market selling activity this week. With the slow pace of internal market sales within Vietnam, contributing to lower volumes of price fixation hedge selling into the London robusta coffee market and assisting to somewhat buoy the prices in trade yesterday.

Overall it was a dull and generally directionless day for the coffee markets yesterday, with indecision seemingly being the order of the day, but with the negative nature of the charts tending to prevail and to dampen supportive spirits. One might guess however that with the weekend to the fore, that it might prove to be somewhat supportive for the fortunes of the volatile New York market for the day today, as the speculative sector look to take some degree of cover ahead of the uncertain Brazil weather news for the coming week.

The second month arbitrage between the markets narrowed yesterday, to register this at 51.21 usc/Lb., while this equates to a 41.58% 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 in more volume upon the fortunes of the London market.

The Certified washed Arabica coffee stocks held against the New York exchange were seen to increase by 3,955 bags yesterday; to register these stocks at 1,899,320 bags. There was meanwhile a larger in volume 7,893 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 52,419 bags.

The Certified Robusta coffee stocks held against the London exchange were seen to decrease by 1,500 bags on Wednesday 21st. October; to register these stocks at 3,396,333 bags on the day.

The commodity markets were again mixed and lacklustre in trade yesterday, but with some support for confidence coming to the fore with the news of improved house sales figures from the U.S.A. and lower jobless claims from the U.S.A. This news accompanied by the confirmation that the European Central Bank is continuing with its monetary stimulus program, to fuel economic growth within the region. The Sugar, London robusta Coffee, Copper, Orange Juice and Silver markets had a day of buoyancy, while the Oil, Natural Gas, Cocoa, New York arabica Coffee, Cotton, Wheat, Corn, Soybean, Gold and Platinum markets tended softer for the day. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.04% lower to see this Index registered at 403.58. The day starts with the U.S. Dollar showing a degree of early buoyancy and trading at 1.540 to Sterling and 1.111 to the Euro, while North Sea Oil is showing a degree of buoyancy in early trade and is selling at 46.75 per barrel.

The London market and New York markets started the day with hesitant and modest buoyancy and an uncertain positive track into the afternoon trade, but with the London market coming under some pressure to head back into negative territory. The New York market attracted support within an environment of lacklustre and thin trade within the early afternoon and with the London market moving back into positive territory but as the afternoon progressed the New York market lost its way and started to come under speculative pressure to slip back into negative territory, while the London market retained its modest buoyancy. The London market slipped back into negative territory late in the day’s trade but managed to bounce back and head towards a modestly positive end for the day, while the New York market remained south of par through to the end. The London market ended the day on a modestly positive note and with 47.4% of the earlier gains of the day intact, while the New York market ended the day of very thin trade on a softer note and with 96% of the earlier losses of the day intact. This close and especially with the New York market having settled at the lows of the day does little to inspire, but with the weekend to the fore and the chances for some degree of pre-weekend book squaring to come into play, one might perhaps foresee a degree of hesitant buoyancy due for early trade today against the prices set yesterday, as follows:

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

NOV 1562 + 9                                       DEC    119.85 – 1.15
JAN 1586 + 9                                        MAR   123.15 – 1.20
MAR 1599 + 8                                       MAY  125.30 – 1.15
MAY 1619 + 8                                        JUL   127.20 – 1.20
JUL 1639 + 8                                          SEP   129.10 – 1.20
SEP 1659 + 8                                          DEC  131.90 – 1.05
NOV 1679 + 8                                        MAR  134.55 – 1.00
JAN 1700 + 9                                         MAY  136.30 – 0.95
MAR 1720 + 11                                       JUL  137.80 – 1.00
MAY 1755 + 30                                       SEP  139.15 – 1.15