Coffee Market Report December 19 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 28.88% during the week of trade leading up to Tuesday 13th. December; to register a net long position of 16,967 Lots on the day.  This net long position which is the equivalent of 4,810,069 bags has most likely been little changed, following the period of mixed but close to sideways trade, which has since followed. 

The well-respected United States Department of Agriculture Foreign Agricultural Service has reported on Friday with their latest forecast for global coffee productions for this new October 2016 to September 2017 coffee year to be 156.6 million bags, as against their forecast for global coffee consumption at a more modest 153.3 million bags.    This report does however include new crop reports and forecasts for Brazil and Vietnam that are at the higher end of many other respected private trade and industry reports and forecasts, at 56.1 million bags of Brazil and 26.7 million bags for Vietnam, respectively. 

This report that indicates a modes 3.3 million bags of surplus supply for the coffee year might be seen to be mildly bearish for the coffee markets but it is in terms of the unpredictable weather conditions for the coming year for most of the main producer blocs, not such a safe longer term surplus and should not be seen to be very bearish.   Especially so as it is has come to the fore against minimal carry over stock levels into the new Brazil crop and reduced carryover stock levels into the new and smaller Vietnam crop, which would dictate that there has should be a significant surplus supply and perhaps even more than the report indicates, so as to build up stocks and provide for some climate related insurance for the longer-term coffee supply. 

It is estimated 75% of the recently completed new crop coffees in Brazil sold and against the softer reference prices forwarded by the international market at present, it is contributing to a degree of internal market price resistance within the country.   Likewise, in terms of the new crop Brazil arabica coffees lacklustre sales, while following the dismal new conilon robusta coffee crop, it would seem that internal market sales are somewhat stalled for the present.  

Meanwhile in terms of the prospects for the follow on 2017 Brazil crop the weather conditions in recent weeks have been favourable and with some leading arabica coffee districts reporting above average rainfall, but it is still early days in terms of this new crop and one would think that there shall have to be three to four more months of normal rainfall conditions if this next Brazil crop is to be anywhere close to the size of this year’s modest surplus crop.   Keeping in mind that as there has after all not been an intense La Niña and with this already on the wane, it is not impossible that one might experience some dry spells for South East Brazil during the first quarter of next year.    A factor that one might see to be reason to be cautious for the present, about taking too much of a bearish stance towards the markets. 

The March to March contracts arbitrage between the London and New York markets narrowed on Friday, to register this at 47.97 usc/Lb., while this equates to a 33.67% price discount for the London robusta coffee market.  This narrowing arbitrage is now becoming less of an 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 were seen to decrease by 3,510 bags on Friday; to register these stocks at 1,253,522 bags.  There was meanwhile a similar in number 3,380 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 36,914 bags. 

The commodity markets encountered a relatively steady U.S. dollar on Friday and mixed fortunes for the markets, but with the overall macro commodity index taking a positive track for the day.   The Oil, Cocoa, Coffee, Soybean, Gold and Silver markets had a day of buoyancy, while the Natural Gas, Sugar, Cotton, Copper, Orange Juice, Wheat and Corn markets had a softer day’s trade.  The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.55% higher; to see this Index registered at 421.07.   The day starts with the U.S. dollar close to steady and trading at 1.249 to Sterling and 1.046 to the Euro, while North Sea Oil is showing a degree of buoyancy and is selling at 54.65 per barrel. 

The London and New York markets started the day on Friday on a steady note and with the markets adding some modest buoyancy, into the thin and lacklustre early afternoon trade.  This stability within the markets assisted for the London market to add value as the day progressed, while the New York market took a more erratic track through the day and moving either side of par before closing off the day to the positive side of par.  The London market ended the day on a very positive note and with 79.4% of the earlier gains of the day intact, while the New York market ended the day on a modestly positive note and with 25% of the earlier gains of the day intact.   This close does assist to paint something of a positive technical picture for the markets and one might expect to see a cautiously close to steady start for early trade today, against the prices set on Friday, as follows: 

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

JAN      2097 + 26                                               DEC    138.20 – 0.10

MAR     2083 + 27                                               MAR   142.45 + 0.25

MAY     2088 + 28                                               MAY   144.80 + 0.35

JUL      2093 + 28                                               JUL     147.00 + 0.30

SEP      2094 + 29                                              SEP     148.80 + 0.20

NOV     2096 + 30                                               DEC    151.65 + 0.20

JAN      2100 + 30                                               MAR   154.25 + 0.10

MAR     2108 + 30                                               MAY   155.90 + 0.10

MAY     2120 + 30                                               JUL    157.50 + 0.10

JUL      2138 + 30                                               SEP    159.15 + 0.10