Coffee Market Report April 21 2017

The weather reports from Brazil for the month of April so far confirm some scattered rain fall has been experienced over most coffee districts, but with the rainfall for the month for most of the arabica coffee districts proving to be below average for the month.   April is however not a high rainfall month and it is not a matter of short term concern, but it does indicate that with prevailing warm days that there is likely to some draw down in ground water retention levels, which one would think shall contribute to some additional stress during the forthcoming cold and dry harvest season. 

The Coffee Division of the Chinese trading conglomerate COFCO post an intensive tour through the main Brazil coffee districts have reported that they foresee that Brazil’s new coffee crop shall be approximately 15% to 20% lower than the last crop, but more likely only 15% lower.   Thus, indicating in terms of general trade and industry assessment of the last 2016 crop one would think, of a new crop of approximately 48 million bags.  Albeit that within this interview COFCO were talking on the basis of a more politically correct and conservative Brazil crop last year of only 51.37 million bags. 

Within the interview however COFCO forecast that with unforeseeable weather problems aside, that this smaller 2017 crop is likely to be followed by a much larger new Brazil crop for the coming year.   With this forecast being very much in line with most private trade and industry forecasts, which have foreseen both a small new crop for Brazil this year and to be followed by a larger new crop for 2018.   

In the meantime, it was a dramatic day for the coffee markets as prevailing fundamentals of generally accepted deficit global coffee supply through to the coming year were ignored and the speculative and fund sectors of the New York market, followed the charts and heavily sold the New York market and with the London market following suit.   Undoubtedly something of a shock for most producer market exporters and traders and it is likely for the short term, to result in price resistant internal market selling activity within most producer countries and to further slow the already mostly lacklustre volumes of new origin selling business for the coming days.  

This attrition within the coffee markets yesterday was perhaps seen to be even more dramatic for the Cocoa markets, with the New York Cocoa prices falling to ten year lows.    The Cocoa market suffering from both the perspective of surplus supply, which has assisted to encourage technical and chart based selling activity.   

The July to July contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 37.96 usc/Lb., while this equates to 28.26% price discount for the London robusta coffee market.  This once again narrowing arbitrage is now becoming less 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 to decrease by 2,990 bags yesterday; to register these stocks at 1,405,028 bags.  There was meanwhile a smaller in number 25 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 24,317 bags. 

The commodity markets were mostly steady to softer in trade yesterday against a relatively steady U.S. dollar, but with many markets once again tending negative and the overall macro commodity index taking a negative track for the day.   The Cotton and Copper markets had a day of buoyancy and the Oil and Gold markets were steady for the day, while the Cocoa, Coffee and Orange Juice markets fell out of bed and the Natural Gas, Sugar, Wheat, Corn, Soybean and Silver markets had a softer day’s trade.   The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.92% lower, to see this Index registered at 410.80.  The day starts with the U.S. Dollar tending softer and trading at 1.281 to Sterling and at 1.071 to the Euro, while North Sea Oil is steady and is selling at $ 50.80 per barrel. 

The London market started the day on a softer note yesterday, while the New York market started the day with early buoyancy.    The London market did however soon recover and returned to par and with the markets taking a sideways track with London on Par and New York positive into the early afternoon trade.   However, as the afternoon progressed and once the Americans entered the field of play, the New York market that had experienced a gain of 1.95 usc/Lb. for the day faltered and fell back into modest negative territory and followed by the London market.   These losses started to increase and in late in the day trade both markets started to hit technical sell stops and with volumes increasing, to take the markets rather dramatically south. 

The London market ended the day on a very soft note and with 82% of the losses of the day intact, while the New York market ended the day on an extremely soft note and 8.30 usc/Lb. below the earlier highs of the day and with 93.4% of the losses of the day intact.   This unexpected collapse within the New York market does little to inspire confidence and further contributes to a negative technical picture for the markets, but the question is following the volumes of trade yesterday how much more in the way of speculative and fund selling volumes might there be available.   Thinking that there is a chance for opportunist consumer industry price fixation buying activity to come into play and the possibility of corrective buoyancy for early trade today, against the very soft prices set yesterday, as follows: 

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

MAY     2098 – 48                                              MAY   131.65 – 6.35

JUL      2124 – 50                                              JUL    134.30 – 6.35

SEP      2138 – 45                                             SEP    136.70 – 6.30

NOV     2143 – 41                                              DEC   140.25 – 6.20

JAN      2140 – 41                                             MAR   143.65 – 6.20

MAR     2136 – 43                                             MAY   145.80 – 6.15

MAY     2138 – 43                                              JUL    147.80 – 6.00

JUL      2144 – 45                                              SEP    149.70 – 5.85

SEP      2152 – 45                                              DEC   152.00 – 5.85

NOV     2159 – 45                                              MAR   154.20 – 5.85