Coffee Market Report February 23 2017

With somewhat intense opposition to the granting of import licences to the countries domestic roasters for up to 1 million bags of robusta coffee over a period of four months from the countries conilon robusta coffees, the Brazilian President Michel Temer has provisionally suspended the authorisation of robusta coffee imports.   Thus, with many within the Brazilian government and supported by the President in conflict with over this politically sensitive issue, the matter is on hold and the news yesterday had a modest negative influence on sentiment within the coffee markets. 

In the meantime, and with internal market supply of conilon robusta coffees and with a traditional demand by domestic roasters for approximately 12 million to 13 million bags of conilon robusta coffee extremely tight, the roasters have been changing blends and absorbing increased volumes of arabica coffees into the blends.   But in this instance, mostly the lower grades and including many that over the past few years had been exported as Brazil grinder coffees.   A factor that impacts upon overall arabica coffee supply to the consumer markets and to a degree, lessens the prevailing small surplus in overall global arabica coffee supply. 

This with the prevailing deficit supply of robusta coffee that can be expected following a smaller new Vietnam crop and a reduction last year of the Vietnam robusta coffee stocks, the general perspective is that there presently is a modest overall deficit coffee supply.   This has resulted in the latest Goldman Sachs commodity outlook forecasting that the New York market has a medium-term upside potential and with a price forecast of something between 165 usc/Lb., to 170 usc/Lb. 

Modestly supportive for the fortunes of the coffee markets is the news yesterday that Kraft Heinz Co. in the U.S.A. have announced that they shall apply an approximate 6% increase to the wholesale prices of their prominent Maxwell House and Yuban brands, with these increases to relate to both their roast and ground and soluble coffee products.    These increases to likewise apply to their McCafé canister products, which they distribute to the market.    Thus, indicating to the market that they believe in medium to longer term coffee price buoyancy and likewise with these increases, their ability to pay up for their coffee future green coffee supply. 

Brazil is moving closer to the pending extensive long weekend which shall see the country celebrate Carnival for the first three days of next week and one would suspect, that there might be some small increase in internal market price fixation selling activity ahead of this weekend.    However with most farmers already well sold for their 2016 arabica coffee stocks one might not think that the volumes shall be that significant that that the related Brazil exporter price fixation selling activity within the New York market shall be that noticeable over today and tomorrow.  

The May to May contracts arbitrage between the London and New York markets broadened yesterday, to register this at 52.88 usc/Lb., while this equates to 35.04% price discount for the London robusta coffee market.  This broadening arbitrage is now becoming more of an attractive factor for the many price sensitive roast and ground roasters who have considered robusta coffees to be an opportunist discount component, within their mostly arabica coffee blends. 

The Certified washed Arabica coffee stocks held against the New York exchange were seen increase by 6,337 bags yesterday; to register these stocks at 1,332,864 bags.  There were meanwhile a smaller in number 5,144 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 25,695 bags. 

The U.S. dollar remained buoyant for the day yesterday and had an impact upon many of the markets, with the overall macro commodity index taking a modestly softer track for the day.    The Natural Gas, Cotton Wheat and Corn markets nevertheless had a day of buoyancy and the Cocoa market was near to steady for the day, while the Oil, Sugar, Coffee, Copper, Orange Juice, Soybean, Gold and Silver markets had a softer day’s trade.   The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.3% lower, to see this Index registered at Friday’s level of 428.01.  The day starts with the U.S. Dollar steady and trading at 1.244 to Sterling and at 1.055 to the Euro, while North Sea Oil is steady and is selling at $ 55.50 per barrel. 

The London market started the day yesterday on a softer note, while the New York market started the day with modest buoyancy.   This remained the track for the markets, which took this mixed track into the early afternoon trade.   As the afternoon progressed the London market encountered the negative news of the halting of the plans to import robusta coffees into Brazil which contributed to the softer stance being taken within this market, but with the New York market and despite the negative influences of the negative nature of the macro commodity index, managing to remain within positive territory.    This was however unstainable and while the London market that had bounced back from the lows continued on a negative track towards the close, the New York market faltered and slipped back into negative territory in late trade.   The London market ended the day on a soft note and with 58.3% of the earlier losses of the day intact, while the New York market ended the day on a likewise soft note and with 65.5% of the losses of the day intact.   This close is unlikely to buoy confidence and one might expect to see little better than a near to steady start for early trade today against the prices set yesterday, as follows: 

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

MAR     2130 – 28                                              MAR   149.20 – 1.15

MAY     2161 – 28                                              MAY    150.90 – 0.95

JUL      2176 – 26                                               JUL    153.20 – 0.90

SEP      2183 – 24                                              SEP    155.45 – 0.95

NOV     2186 – 24                                               DEC   158.50 – 1.00

JAN      2187 – 24                                              MAR   161.45 – 1.00

MAR     2190 – 24                                              MAY   163.20 – 0.90

MAY     2191 – 24                                               JUL    164.70 – 0.85

JUL      2192 – 24                                               SEP    166.15 – 0.80

SEP      2200 – 24                                               DEC   168.25 – 0.75