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

 

I. & M. Smith (Pty) Ltd.

Coffee Market Report

09 Nov 2015
The latest Commitment of Traders report from the New York arabica coffee market has seen the Non Commercial Speculative sector of this market increase their net short sold position within the market by 23.42% during the week of trade leading up to Tuesday 3rd. November; to register a net short sold position of 23,886 Lots. This net short sold position which is the equivalent of 6,771,575 bags has most likely been increased further, following the mixed but overall negative trade that came with Friday’s relatively sharp selloff within the market.

There has been no further clarity on the specifics of the plans by the Brazilian National Crop Supply Agency to resume their biweekly auctions of government coffee retention stocks before the end of the year, but they do indicate that the auctions shall start with volumes that would target the sale of between 300,000 and 400,000 bags of aged arabica coffees by the end of the year. This would be a significant volume of coffee in terms of the retention stock estimated to only be in the region of 1.56 million bags and presuming that there shall be some degree of success in terms of the auctions attracting domestic industry support at equal to better than the reserve prices set and would carry on in the new year, such volumes would presumably target the liquidation of most of the stocks by the end of the first quarter of the coming year.

There was no striking coffee news on Friday and it was mostly a day of lacklustre sideways trade, until such time as the surging value of the U.S. dollar came into play and to trigger a sell off within the markets, with sell stops coming into play to accelerate the losses. This has to be worrying news for the Mexicans and Central Americans as the markets continue to struggle to hold some value and are taking this negative stance while their new crop coffees are now coming into harvest and to look for a home within a soft trading range for the related New York market, which indicates no short term signs of recovery.

It is likewise disappointing news for Vietnam and their potentially larger new robusta coffee crop, which is now coming into full harvest and against the similarly soft trading range for the related London market that has seemingly got a nearby ceiling hanging over the market. This be a ceiling that would be set by the fact that any significant rise in value, would very quickly trigger more aggressive selling and the liquidation of the significant carryover stocks of past crop robusta coffees on the part of the farmers and internal traders, within Vietnam.

The second month arbitrage between the markets narrowed on Friday, to register this at 48.39 usc/Lb., while this equates to a 39.94% 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 1,889 bags on Friday; to register these stocks at 1,895,821 bags. There was meanwhile a larger in volume 4,412 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 26,031 bags.

The Certified Robusta coffee stocks held against the London exchange were seen to decrease by 6,167 bags on Thursday 5th. November; to register these stocks at 3,342,500 bags on the day.

The commodity markets were mixed on Friday but took a turn for the worse with the news of the relatively sharp drop in U.S. unemployment figures which was far more than any expectations and by nature, further fuelled the speculation for a U.S. interest rate hike by the end of the year. This news brought with it renewed muscle for the U.S. dollar and impacted negatively upon the overall macro commodity index, which further impacted upon speculative sentiment within the many of the markets. The Natural Gas, Orange Juice and Soybean markets nevertheless had a day of buoyancy, while the Oil, Sugar, Cocoa, Coffee, Cotton, Copper, Wheat, Corn, Gold, Silver and Platinum markets had a negative day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.71% lower to see this Index registered at 391.97. The day starts with the U.S. Dollar near to steady and holding onto most of Friday’s gains in early trade and trading at 1.507 to Sterling and 1.077 to the Euro, while North Sea Oil is showing some modest buoyancy in early trade and is selling at 46.50 per barrel.

The London market started the day on Friday on a hesitantly steady note, while the New York market started the day near to steady note and following a brief follow through pip above par, fell back into negative territory. Both markets entered the afternoon trade at the negative side of par and with the firming U.S. dollar coming into play, took a further downside track as the afternoon progressed and with the markets taking a soft track towards a soft close. The London market ended the day on a very soft note and with 95.6% of the earlier losses of the day intact, while the New York market ended the day on a soft note and with 77.5% of the earlier losses of the day intact. This close does little to inspire and contributes towards the charts tending to look negative, but one might think that there might be some hesitancy in terms of follow though selling and the possibility of a steady start in thin trade due for early trade today against the prices set yesterday, as follows:

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

NOV 1574 – 63                                           DEC     117.75 – 3.15
JAN 1604 – 65                                            MAR    121.15 – 3.10
MAR 1619 – 62                                          MAY    123.35 – 3.00
MAY 1639 – 62                                            JUL    125.40 – 2.95
JUL 1659 – 60                                              SEP    127.35 – 2.95
SEP 1678 – 58                                             DEC    130.20 – 3.00
NOV 1696 – 58                                          MAR    133.05 – 2.95
JAN 1710 – 58                                           MAY    135.05 – 2.90
MAR 1728 – 58                                           JUL     136.85 – 3.00
MAY 1751 – 58                                           SEP     138.55 – 3.15