Coffee Market Report December 29 2016

The latest Commitment of Traders report from the New York arabica coffee market has seen the shorter term in nature Managed Money fund sector of this market decrease their net long position within the market by 13.98% over the week of trade leading up to Tuesday 20th. December; to register a net long position of 19,014 Lots.   Meanwhile the longer term in nature Index Fund sector of this market increased their net long position within the market by 0.48%, to register a net long position of 35,911 Lots on the day. 

Over the same week, the Non-Commercial Speculative sector of this market decreased their long position within the market by 12.67%, to register net long position of 14,817 Lots.   This net long position which is the equivalent of 4,200,554 bags has most likely been further reduced, following the negative trade that has since followed and likewise, that of the Managed Money fund sector of the market. 

Reports from Costa Rica and Nicaragua indicate that unseasonal heavy rains in late November and earlier this month might have done some damage to the potential of the new crop coffees from the lower grown regions within these countries, where ripe cherries would have been split or knocked off the trees.   However, despite farmers in these lower grown regions that account for the relatively inexpensive HB and HG coffees from these countries indicating losses that might exceed 15% of the potential crop, these regions account for a smaller percentage of the overall crops from Costa Rica and Nicaragua.  Thus, one might suggest that the reports of this damage will not do much to counter the prevailing bearish nature of the New York arabica coffee market, which is seemingly reacting to the potential for a surplus arabica coffee supply for this new October 2016 to September 2017 coffee year. 

Vietnam is due to start closing down for a relatively early Tet New Year next year holiday on Thursday 26th. January, to celebrate the start of the Year of the Rooster.  These festivities that shall carry on through to Wednesday 1st. January would traditionally be encouraging for farmers to show more aggressive selling activity, so as to raise finance for the holidays.  However, with the improved prices that the Vietnamese robusta coffee farmers have been receiving of late, one might not expect that there shall be continued internal market new crop price resistance and thus, not much chance for aggressive fixation hedge selling to be start to impact negatively upon the London market over the next four weeks of trade. 

The March to March contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 39.29 usc/Lb., while this equates to a 29.43% 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 increase by 1,210 bags yesterday; to register these stocks at 1,264,892 bags.  There was meanwhile a larger in number 2,112 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 28,050 bags. 

The Certified Robusta coffee stocks held against the London exchange were seen to decrease by 2,667 bags or 0.11% during the week of trade leading up to the 27th. December, to see these stocks registered at 2,360,667 bags on the day.

 The commodity markets following the Christmas break were all active yesterday and with mixed results, with the overall macro commodity index taking a close to steady track for the day.   The Oil, Sugar, Cotton, Wheat, Soybean and Gold markets had a day of buoyancy and the Natural Gas and Silver markets were steady, while the Cocoa, Coffee, Copper, Orange Juice and Corn markets had a softer day’s trade.  The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.12% lower; to see this Index registered at 418.90.   The day starts with the U.S. dollar steady and trading at 1.224 to Sterling and 1.046 to the Euro, while North Sea Oil is showing a degree of buoyancy and is selling at $ 54.80 per barrel. 

The London market started the day with predictable post the extended long weekend catch up losses and followed by the New York market opening the day with early buoyancy, to see the markets take this mixed track into the early afternoon trade.   However, as the afternoon progressed and with the Americans entering the field of play the New York market started to come under pressure and the market slipped back to join the London market in negative territory.   The New York market slipped back further and triggered new six month lows, but did manage to limit the losses in late day and with the fundamentally more stable London market bouncing back a little better from the lows and remaining only in modest negative territory.   The London market ended the day of a soft note and with 37.5% of the earlier losses of the day intact, while the New York market likewise ended the day on a soft note and with 51.9% of the earlier losses of the day intact.    This close does little to inspire confidence and particularly with a negative picture being painted for the New York market, but with the ability of the markets to limit their losses and with some degree of exhaustion within the somewhat oversold New York market, one might expect to see a steady start for early trade today against the prices set yesterday, as follows: 

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

JAN      2085 – 18

MAR     2077 – 12                                               MAR   133.50 – 0.70

MAY     2086 – 9                                                 MAY   135.85 – 0.65

JUL      2092 – 7                                                 JUL     138.15 – 0.65

SEP      2095 – 9                                                SEP     140.20 – 0.65

NOV     2100 – 6                                                 DEC    143.20 – 0.65

JAN      2098 – 8                                                 MAR   146.05 – 0.60

MAR     2099 – 10                                               MAY   147.75 – 0.65

MAY     2104 – 12                                               JUL    149.35 – 0.65

JUL      2114 – 14                                               SEP    151.10 – 0.60