Coffee Market Report March 29 2017

With the month of March coming to a close and with the majority of the export registrations for the month in hand the customs authorities in Vietnam have estimated that the countries coffee exports of mostly robusta coffee for the month shall be higher than expectations, at a total of approximately 3 million bags.   This is rather a surprising number, when earlier forecasts had been for exports for the month of between 2.33 million and 2.67 million bags. 

This improved performance for the month of March would the authorities report, contribute to the countries coffee exports for the first three months of this year to being only 1.6% lower than the same period in the previous year, at a total of 7.8 million bags.   One might comment that this is an impressive performance when one considers that these exports are based on a smaller new crop that was harvested, over the period of October 2016 to January 2017. 

However, it is perhaps not a surprising performance as these exports have come to the fore within an environment of lack of competition from the Brazil conilon robusta coffees and relatively modest robusta coffee supply from Indonesia, while the reference prices of the London market and the related high internal market prices to the farmers, have assisted to encourage high volumes of farm sales to the mills and exporters.   But with such good volumes of sales and exports over the recent months and with internal market stocks declining, it does tend to indicate that Vietnam coffee exports shall start to tail off in volume by July this year. 

Presently there has been a market acceptance that global robusta coffee supply is in deficit for the short term and until the end of the year, when there is the potential for a larger new Vietnam crop and therefore, the short-term focus is now upon the prospects for the new Brazil arabica coffee crop. 

In this respect and with a host of forecasts indicating that the new Brazil arabica coffee crop might be a much as 5 million bags lower than the last crop and with only modest volumes of carry over arabica coffee stocks due to join the new crop in July this year, it is indicating that that there is potential for only close to matching supply to demand for arabica coffee supply for the forthcoming October 2017 to September 2018 coffee year. 

However, many still question the prospects for such a large biennially bearing lower new Brazil arabica coffee crop but if it does prove to be true, it is a factor that is in mind and is likely to limit the downside potential for the related New York arabica coffee market.   While furthermore, it is a factor that if proved to be close to correct and with the speculative sector of the market not really very long in the market at present, that would prove to be a supportive factor for sentiment within the New York market for the second half of this year.  

The May to May contracts arbitrage between the London and New York markets broadened yesterday, to register this at 40.51 usc/Lb., while this equates to 29.18% 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 decrease by 984 bags yesterday; to register these stocks at 1,345,214 bags.  There was meanwhile a larger in number 1,780 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 53,179 bags. 

The commodity markets were mixed in trade yesterday but with the influential Oil markets recovering, it assisted for the overall macro commodity index to take a positive track for the day.   The Oil, Copper and Silver markets had a day of buoyancy, while the Natural Gas, Sugar, Cocoa, Coffee, Orange Juice and Gold markets tended softer for the day.   The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.04% higher, to see this Index registered at 419.38.  The day starts with the U.S. Dollar steady and trading at 1.240 to Sterling and at 1.081 to the Euro, while North Sea Oil is near to steady and is selling at $ 50.65 per barrel. 

The London and New York markets started the day yesterday on marginally softer note, while the New York market started the day with modest buoyancy but this was short lived and both market took a softer track into the early afternoon trade.   As the afternoon progressed the markets did though manage to steady at their lows and while the London market took something of a sideways track for the rest of the day, the New York market recovered and took as marginally softer sideways track for the rest of the day’s trade.   The London market ended the day on a soft note and with 64.3% of the earlier losses of the day intact, while the New York market ended the day on a marginally softer note and having recovered 75.9% of the earlier losses of the day.    This close that is more of a correction post the previous day’s recovery than a direction, provides little in the way of an indicator for the markets and one might expect to see a hesitant near to steady start for early trade today, against the prices set yesterday, as follows: 

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

MAR     2143 – 18 

MAY     2168 – 18                                               MAY   138.85 – 0.35

JUL      2189 – 19                                               JUL    141.20 – 0.35

SEP      2200 – 19                                              SEP    143.55 – 0.35

NOV     2204 – 18                                               DEC   146.85 – 0.35

JAN      2199 – 16                                              MAR   150.05 – 0.35

MAR     2199 – 16                                               MAY   152.15 – 0.35

MAY     2202 – 16                                               JUL    153.95 – 0.35

JUL      2208 – 12                                               SEP    155.60 – 0.35

SEP      2216 – 12                                               DEC   157.60 – 0.40

NOV     2200 unch                                              MAR   159.65 – 0.40