Coffee Market Report 3rd. October 2016 October 03 2016

3rd. October, 2016

The latest Commitment of Traders report from the New York arabica coffee market has seen the Non Commercial Speculative sector of this market decrease their net long position within the market by 6.14% during the week of trade leading up to Tuesday 27th. September; to register a net long position of 37,498 Lots on the day.  This net long position which is the equivalent of 10,630,517 bags has most likely been slightly eroded, following the period of mixed but overall negative trade that has since followed. 

With the month of September past, the Indonesia government trade data from Sumatra which is the leading coffee producing island within Indonesia, has reported that the islands robusta coffee exports for the month were 365,140 bags or 54.47% lower than the same month last year, at a total of 305,210 bags.  This dip in exports has contributed to the islands cumulative robusta coffee exports for the October 2015 to September 2016 coffee year to be 2,678,617 bags or 50.49% lower than the same period in the previous coffee year, at a total of 2,626,936 bags. 

This sharp dip in robusta coffee exports for the coffee year so far from Sumatra is very much in line with the expectations of a lower new crop that was due, as a result of the relatively dry conditions that were experienced over the last quarter of last year and the first quarter of this year, as a result of the El Nino phenomenon that occurred.   This more modest Indonesian robusta coffee supply to be accompanied by negligible conilon robusta coffee supply from Brazil over the same period, to leave Vietnam and its controlled and price resistant farmers to be very much holding the reigns of consumer market robusta coffee supply over the next nine months.  

Contributing to the concerns over medium term global robusta coffee supply, the Brazil Coffee Exporters Council Cecafé have reiterated their assessment of a very modest conilon robusta coffee harvest this year, which they foresee shall result in minimal conilon robusta coffee exports for the coming nine months.  But they do also forecast that with a large new arabica coffee harvest this year, that overall Brazil coffee export volumes shall be stable at close to 32 million bags of the new October 2016 to September 2017 coffee year. 

Thus indicating that with a domestic coffee consumption of between 20 million and 21 million bags per annum, that there shall be a Brazil coffee absorption of between 52 million and 53 million bags for this new coffee year, which is only marginally lower than most of the new crop forecasts.  This would further indicate that with carryover stocks into this year’s new Brazil crop having been very modest, how important it is that Brazil has a good overall spring and summer rain season so as to support a good 2017 new coffee crop.   Potentially a factor to prove to be market supportive, until such time as there might be confirmation for the prospects of a good sized Brazil coffee crop for next year. 

The International Coffee Organisation have reported that the global coffee exports for the month of August were 9.5% higher than the same month last year, at a total of 9.76 million bags.  This figure contributing to the global coffee exports for the first eleven months of the October 2015 to September 2016 coffee year, to have been only 1% lower than the same period in the previous coffee year, at a total of 102.75 million bags.   They do note however that while global coffee exports were steady for these eleven months, that the mix was heavily weighted towards the arabica coffees, as the robusta coffee exports were 7.7% lower than the same period in the previous coffee year at only 37.43 million bags and therefore only 36.43% of total coffee exports for these eleven months.  

The November to December contracts arbitrage between the London and New York markets broadened on Friday, to register this at 60.65 usc/Lb., while this equates to a 40.02% price discount for the London robusta coffee market.  This arbitrage is perhaps becoming a less attractive factor for the 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 with the exchange were seen to decrease by 7,848 bags on Friday; to register these stocks at 1,258,353 bags.  There was meanwhile a smaller in number 330 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 4,870 bags. 

The commodity markets had a mixed day on Friday, with the overall macro commodity index taking a sideways track for the day.   The Oil, Cocoa, New York arabica Coffee, Copper, Orange Juice, wheat, Corn, Soybean and Silver markets had a day of buoyancy, while the Natural Gas, Sugar, London robusta Coffee, Cotton and Gold markets had a softer day’s trade.   The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.07% lower; to see this Index registered at 418.45.   The day starts with the U.S. dollar steady in early trade and trading at 1.293 to Sterling and 1.123 to the Euro, while North Sea Oil is tending softer in early trade and trading at 48.00 per barrel. 

The London market started the day on Friday on a softer note and the New York market started the day on a near to steady note, with the markets maintaining this stance through to early afternoon trade, when the New York market started to show a degree of buoyancy and take on a modestly positive stance.   The New York market did however soon falter and did briefly dip back to join the London market in negative territory before recovering and setting a positive sideways track for the rest of the day’s trade, while the London market recovered to remain in modest negative territory through to the close.   The London market ended the day on a modestly negative note but having recovered 71.4% of the earlier losses of the day by the close, while the New York market ended the day on a positive note and with 40% of the earlier gains of the day intact.   This mixed close does little to inspire, but one might expect to see some catch up buoyancy for the London market and perhaps a near to steady start for the New York market for early trade today against the prices set on Friday, as follows: 

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

NOV     2004 – 6                                                 DEC   151.55 + 1.40

JAN      2027 – 5                                                MAR   154.90 + 1.40

MAR     2036 – 4                                                MAY   156.70 + 1.30

MAY     2043 – 4                                                 JUL   158.45 + 1.30

JUL      2050 – 3                                                 SEP   160.05 + 1.25

SEP      2059 – 3                                                DEC   162.10 + 1.25

NOV     2067 – 3                                                MAR   163.80 + 1.25

JAN      2077 – 3                                                MAY   164.85 + 1.25

MAR     2084 – 3                                                 JUL   165.85 + 1.25

MAY     2084 – 3                                                 SEP   166.80 + 1.20