Coffee Market Report March 03 2017
The preliminary coffee export figures from Brazil for the month of February have been announced by the Brazil Ministry of Trade, to announce that coffee exports for the month were 370,000 bags or 13.86% lower than the same month last year, at a total of 2.3 million bags. This dip in export volumes not really reflecting much in the way of decline if global supply of Brazil arabica coffees which have dedicated demand within many leading consumer markets, but rather the lack of advantageous supply of price competitive conilon robusta coffees, that has seen supply of these coffees drying up, post the dismal 2016 conilon crop.
Meanwhile there are reports of growing price resistance within the internal market in Vietnam for the remaining stocks of robusta coffees, as the already well sold farmers are holding out of more value. This price resistance and its influence upon the volumes of price fixation selling in the London robusta coffee market, is assisting to buoy the prices of the London market.
Predictably and following the lower Vietnam crop during the last quarter of last year and the dismal new Brazil conilon robusta coffee crop last year and with global robusta coffee supply in deficit for the present October 2016 to September 2017 coffee year as against a small surplus arabica coffee crop, the arbitrage between the London robusta coffee market and the New York arabica coffee market has been narrowing during trade this year. Albeit that the sharply narrowing of the arbitrage in yesterday’s trade is likely due for some correction, as the London market is likely to suffer from corrective price fixation selling following the softer track taken in late trade within the New York market yesterday.
There is little in the way of striking fundamental new news coming to the coffee markets at present, but there is growing speculation of a new El Nino phenomenon possibly developing during the second half of this year within the Pacific Ocean. This is however so far not really a factor in terms of market sentiment as following the modest nature of last year’s La Niña phenomenon, the prospects of might prove to be only a modest El Nino phenomenon if any, is not yet a factor to create any fears of declining medium term coffee supply.
What shall be a factor to be watched on the short term though shall be the advent of the new summer rain season that is due to kick in next month in Vietnam, as following the recently completed smaller new crop for the country and the declining coffee stocks, it shall be necessary for Vietnam to have good weather to support a larger new year end new crop. For the present though there are no indications of any reason to fear that Vietnam shall not have a normal rain season, but the weather forecasts and reports out of Vietnam are no doubt due for some debate over the coming weeks.
The May to May contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 43.88 usc/Lb., while this equates to 30.40% 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 increase by 5,835 bags yesterday; to register these stocks at 1,338,469 bags. There were meanwhile a smaller in number 826 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 30,669 bags.
The commodity markets with speculation for a further Federal Reserve Bank interest rate hike and the U.S. dollar showing some degree of muscle yesterday were mostly on a negative track for the day, to see the overall macro commodity index taking a softer track for the day. The Natural Gas, Sugar, Cocoa, London robusta Coffee and Orange Juice markets nevertheless had a day of buoyancy, while the Oil, Cotton, New York arabica Coffee, Copper, Wheat, Corn, Soybean, Gold and Silver markets had a softer day’s trade. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.97% lower, to see this Index registered at 425.61. The day starts with the U.S. Dollar tending a little softer and trading at 1.226 to Sterling and at 1.052 to the Euro, while North Sea Oil is steady and is selling at $ 53.90 per barrel.
The London and New York markets started the day yesterday on a steady note and taking a steady to modestly buoyant track into the early afternoon trade, but with the New York market losing its way as the afternoon progressed and drifting back into negative territory. The New York market did however manage to bounce back from its lows and follow the London market to the upside while the London market added more value in late trade, but with the New York market once again slipping back into modest negative territory for late trade. The London market ended the day on a very positive note and with 95.7% of the gains of the day intact, while the New York market ended the day on a modestly negative note and having recovered 80.9% of the earlier losses of the day by the close. This close and with the London market showing some degree of muscle is perhaps constructive for confidence but with the inability of the New York market to match the buoyancy of the London market it is likely to bring some selling pressure to the fore for the London market in early trade today against the prices set yesterday, as follows:
LONDON ROBUSTA US$/MT NEW YORK ARABICA USc/Lb.
MAR 2192 + 79 MAR 142.20 – 0.45
MAY 2215 + 66 MAY 144.35 – 0.45
JUL 2230 + 65 JUL 146.70 – 0.45
SEP 2238 + 65 SEP 149.00 – 0.45
NOV 2241 + 65 DEC 152.15 – 0.40
JAN 2244 + 65 MAR 155.25 – 0.35
MAR 2246 + 65 MAY 157.20 – 0.30
MAY 2248 + 65 JUL 158.75 – 0.30
JUL 2250 + 65 SEP 160.20 – 0.30
SEP 2258 + 65 DEC 162.35 – 0.30