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

Coffee Market Report

12 Nov 2015
The new Vietnam crop is still only slowly coming in, but has apparently picked up in volume since the weather conditions have turned drier over the main robusta coffee districts of country. This would indicate that with the new coffee cherries maturing, that December shall be a very busy high volume harvest month and with the potential that new crop coffees shall start to pressure the farmers and internal traders to need to make space to store the new coffees. This might finally and despite the soft nature of the reference prices of the London market, inspire some increase in selling activity on the part of the farmers, who have so far and for most of this year, been maintaining a relative strong price resistance.

This price resistance on the part of the Vietnam farmers and internal traders having by nature, inflated the exporters asking price differentials relative to the London market and likewise, limited exports to volumes that roasters have to have, but not fuelling the consumer market robusta coffee trade stocks. There is however the possibility that despite the pressure of having new crop coffees coming in over and above the significant past crop stocks held by the farmers and internal traders, that they shall gamble on the fact that the El Nino phenomenon and its influence upon dry weather for Indonesia shall reduce Indonesian production in the coming year and open up a window of opportunity to add value to their stocks on the longer term. Thus one might well expect to see some degree of price resistance prevail within the Vietnam internal market for some months to come.

Meanwhile the new main Colombian crop is in full harvest and albeit that many larger farmers are struggling to find enough labour to harvest the crop, the coffees are coming to the market and there are no consumer market concerns over short to medium term fine washed arabica coffee supply. This lack of concern further fuelled by the fact that the new crops are now starting to be harvested in the lower grown districts of Mexico and Central America and with an overall larger new crop forecasted from this producer bloc, the prospects for good new crop coffee supply for the longer term.

Thus for the present and so long as the rains continue within Brazil and support the prospects for a larger new crop for the coming year and despite the lower new crop this year that is being supplemented by sufficient carry over coffee stocks, there are no concerns over medium term coffee supply. Therefore without any scare stories coming to the coffee markets, the markets continue to trade within the prevailing relatively soft trading range and tending to track the soft nature of the overall macro commodity index.

There is however and despite good volumes of coffee available to the consumer markets from most producer blocs a general price resistance within the internal markets of most producers, which is keeping export prices at premiums to the tenderable price levels for the stocks of the New York and London markets. Thus the stocks remain relatively low within both markets but with the evidence of good volumes of coffee to come to the markets in the coming months, the low nature of the certified stocks is not supporting speculative confidence and price support within the markets.

The second month arbitrage between the markets broadened yesterday, to register this at 46.12 usc/Lb., while this equates to a 38.39% 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 decrease by 7,880 bags yesterday; to register these stocks at 1,881,087 bags. There was meanwhile no change to the number of bags pending grading for this exchange; to register these pending grading stocks at 26,971 bags.

The Certified Robusta coffee stocks held against the London exchange were unchanged on Tuesday 10th. November; to register these stocks at 3,340,000 bags on the day.

The commodity markets were mixed in trade yesterday, with the overall macro commodity index taking a steady sideways track for the day. The Cocoa, Coffee, Cotton, Orange Juice, Corn and Soybean markets had a day of buoyancy, while the Oil, Natural Gas, Sugar, Copper, Wheat, Gold, Silver and Platinum markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.15% higher to see this Index registered at 387.98. The day starts with the U.S. Dollar steady in early trade and trading at 1.522 to Sterling and 1.075 to the Euro, while North Sea Oil is showing some modest buoyancy in early trade and is selling at 45.10 per barrel.

The London market started the day yesterday to the south side of par, while the New York market encountered some modest buoyancy and with both markets tending to soften in early afternoon trade and with the London market increasing its modest losses and the New York market heading back to par. The New York market did however soon bounce back and maintain a positive stance for the rest of the day, with the London market struggling back later in the day into positive territory. The London market ended the day on a modestly positive note and with 66.7% of its gains intact, while the New York market ended the day on a likewise modestly positive note and with 37.5% of the earlier gains of the day intact. This very modest buoyancy seen within trade yesterday but with a total lack of supportive fundamental news does not really change the negative look of the markets at present and one might expect little better than a near to steady start to early trade today against the prices set yesterday, as follows:

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

NOV 1598 + 4                                              DEC    116.80 + 0.50
JAN 1632 + 4                                               MAR   120.15 + 0.45
MAR 1644 + 3                                             MAY   122.40 + 0.40
MAY 1664 + 3                                               JUL   124.55 + 0.45
JUL 1684 + 3                                                 SEP   126.45 + 0.40
SEP 1703 + 3                                                DEC   129.35 + 0.40
NOV 1721 + 4                                              MAR   132.20 + 0.40
JAN 1735 + 4                                               MAY   134.15 + 0.45
MAR 1753 + 4                                               JUL    136.05 + 0.60
MAY 1776 + 4                                               SEP    137.90 + 0.80