Coffee Market Report February 17 2017

The Brazil Foreign Trade Chamber CAMEX and therefore the Brazil government is reported to have approved the importation of up to 1 million bags of robusta coffee yesterday, with a minimal import duty of 2% to be applied to these imports.    These imports are however to be restricted to only 250,000 bags per month, while they shall only be allowed to proceed once the decision has be gazetted. 

The restrictive monthly volumes one would suggest, is a concession to the countries conilon coffee farmers who have over the past six months been countering the negative effects of an approximate 40% lower 2016 conilon crop, by the significant price premiums that they have able to demand from the countries domestic coffee industry.   But with the domestic industry traditionally absorbing approximately 1 million bags of conilon robusta coffee per month and the imports only likely to cover only 25% of this demand, one might imagine that internal market prices for conilon coffee shall remain relatively buoyant. 

The bigger question is thought and with the new conilon robusta coffee crop due to the mostly dry and hot weather experienced over the past five months within the main conilon producing state of Espiritu Santo being forecasted to be another modest crop, if this import concession shall set something of a precedent.   In this respect and with forecasts presently indicating a potential 3 to 4 million bags deficit conilon robusta crop due for this year, will the Brazil government concede to further robusta coffee imports from July onwards and through to the follow on conilon robusta coffee crop in April 2018.    

It is a one would think to be a strong possibility and if this were to be the case and depending on the fortunes of the next year end Vietnam robusta coffee crop and likewise the fortunes of the robusta coffee crops in Indonesia, India and Africa, it could prove to be a longer-term support factor for the related London market.  As for the present global robusta coffee supply is in deficit and all indications are so far, that it shall remain so until at least the end of the year.  

Meanwhile reports indicate that with the good profits from the past few months of sales in hand and on the back of a modestly lower robusta coffee crop that was completed last month, that there is building internal market price resistance in Vietnam.  This should with the resulting lower volumes of price fixation selling activity into the London market, prove to be a short-term support factor for the market and might continue to be a factor until the new Indonesian robusta coffee crop starts to come into play in three months’ time.   

Fundamental support factors are however not available for the short-term fortunes of the New York arabica coffee market, as for the present with good volumes of production in Colombia, an increased overall new crop in Mexico and Central America near to completion and forecasts for a larger new crop due for Peru, the global arabica coffee supply remains in surplus.    But not dramatically so, as with the tightness in robusta coffee supply there is increased demand for lower quality arabica coffees to supplement robusta coffee demand and one might suggest that this will assist to be supportive for the New York market.   Where the big question now is, what shall be the size of the new Brazil arabica coffee crop that is due to start impacting in July this year.  

The May to May contracts arbitrage between the London and New York markets broadened yesterday, to register this at 49.56 usc/Lb., while this equates to 33.4% price discount for the London robusta coffee market.  This relatively narrow 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 decrease by 919 bags yesterday; to register these stocks at 1,316,148 bags.  There were meanwhile a similar in number 960 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 44,982 bags. 

The commodity markets were mixed in trade yesterday and with a marginally softer U.S. dollar supportive for many markets but despite this, the overall macro commodity index struggled to remain on par.   The Oil, Cocoa, Coffee, Orange Juice, Gold and Silver markets had a day of buoyancy, while the Natural Gas, Sugar, Cotton, Copper, Wheat, Corn and Soybean markets had a softer day’s trade.  The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.22% lower, to see this Index registered at 431.67.  The day starts with the U.S. Dollar tending softer and trading at 1.250 to Sterling and at 1.067 to the Euro, while North Sea Oil is steady and is selling at $ 54.50 per barrel. 

The London and New York markets started the day yesterday with a degree of buoyancy and setting the mood for a positive track into the early afternoon trade, with added value coming to the fore for both markets as the afternoon progressed.   Little changed thought the day and both markets continued to maintain their positive track, through to the close.    The London market ended the day on a very positive note and with 91.2% of the earlier gains of the day intact, while the New York market ended the day on a positive note and with 67.4% of the earlier gains of the day intact.   This close shall assist to buoy the technical picture that both markets portray and one would think shall likewise buoy confidence and it is likely that this shall along with the softer dollar in play, assist for a follow through steady start for the markets today against the prices set yesterday, as follows: 

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

MAR     2149 + 33                                              MAR   146.30 + 1.80

MAY     2179 + 31                                              MAY    148.40 + 1.45

JUL      2188 + 30                                               JUL    150.65 + 1.45

SEP      2194 + 28                                              SEP    152.95 + 1.45

NOV     2196 + 26                                               DEC   156.10 + 1.45

JAN      2198 + 23                                              MAR   159.10 + 1.50

MAR     2201 + 23                                              MAY   160.80 + 1.50

MAY     2202 + 25                                              JUL    162.40 + 1.55

JUL      2203 + 26                                              SEP    163.90 + 1.60

SEP      2211 + 25                                              DEC   166.10 + 1.60