Coffee Market Report April 19 2017

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 short sold position within the market by 56.12% over the week of trade leading up to Tuesday 11th. April; to register a net short position of 810 Lots.   Meanwhile the longer term in nature Index Fund sector of this market increased their net long position within the market by 2.45%, to register a net long position of 30,412 Lots on the day. 

Over the same week, the Non-Commercial Speculative sector of this market increased their long position within the market by 48.32%, to register net long position of 4,009 Lots.   This net long position which is the equivalent of 1,136,534 bags bags has most likely been increased again, following a period of mixed but overall steady trade that has since followed and likewise, the modest net short sold position of the Managed Money fund sector of the market might well have moved back into a modest net long position. 

In the northern conilon robusta coffee district of Rondônia in Brazil the new crop harvest is well on the way, but with rain interruptions coming to the fore, to slow the day by day progress of this harvest.  While in the main south east conilon robusta coffee district in northern Espirito Santo the new crop harvest is now starting and with some comments now coming to the fore, which indicate that this new crop shall be improved over the dismal past crop, in terms of both quality and volume.   

This is positive news for Brazil’s domestic coffee roasters and particularly for the value added soluble coffee exporters, who are experiencing some degree of price relief for their purchases of new crop conilon robusta coffees.   But while there is now expected to be an improved new conilon robusta coffee crop this year, it is not foreseen to be a full recovery post last year’s dismal crop, but only a crop that shall limit the deficit supply relative to domestic market demand and few would foresee any significant volumes of conilon robusta coffee exports from Brazil until the advent of the next 2018 crop, which shall impact late in the second quarter of next year. 

The Indonesian Coffee Exporters Association are forecasting an approximately 10% improved coffee harvest for this year, which they foresee to be between 10.8 million to 11.6 million bags, which would assist and with robusta coffees dominating the countries overall coffee production, to buoy the countries robusta coffee exports for his year.   However, they note that the countries domestic coffee consumption continues to surge which they say has increased by 19.2% in volume over the past four years, which they further foresee shall limit the impact of improved production in terms of coffee exports for the year. 

Thus, and despite some improvement from Indonesia for this year’s coffee supply, one would foresee that following the 2016-year end small new Vietnam crop and on top of reduced volumes of carryover stocks, that the prevailing relatively tight supply of robusta shall continue through to at least November this year.   The big question shall be what are the prospects for the next Vietnam robusta coffee crop that shall start to impact at the end of the year, which so far is mostly being forecasted to be a larger new crop and one that shall broaden the presently relatively thin arbitrage between the London and New York markets.  

The July to July contracts arbitrage between the London and New York markets broadened yesterday, to register this at 46.21 usc/Lb., while this equates to 31.75% 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 7,151 bags yesterday; to register these stocks at 1,411,182 bags.  There was meanwhile a smaller in number 5,874 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 24,457 bags. 

The commodity markets were mixed in post-holiday trade yesterday and despite some support from the weaker U.S. dollar, the trend was somewhat soft and with the overall macro commodity index taking a softer track for the day.   The Sugar, Coffee, Orange Juice and Gold markets had a day of buoyancy and the Cotton market was steady, while the Oil, Natural Gas, Cocoa, Copper, Wheat, Corn, Soybean and Silver markets had a softer day’s trade.  The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.12% lower, to see this Index registered at 418.12.  The day starts with the U.S. Dollar tending softer and trading at 1.283 to Sterling and at 1.072 to the Euro, while North Sea Oil is near to steady and is selling at $ 52.35 per barrel. 

The London market following the recovery in New York on Monday and while London was still on holiday, predictably started the day yesterday on a positive note, while the New York market suffered from a modest negative correction.  This saw both markets move into early afternoon trade on a mixed track and with London remaining north of par, while New York remained south of par.  As the afternoon progressed the New York market and perhaps with some degree of support for sentiment coming from the latest commitment of traders report that indicated little in the way of a speculative net long position started to recover, to move back to join the London market in positive territory.   The London market continued on its modestly positive sideways track for the rest of the day, but with the New York market building upon its recovery and somewhat overtaking the hesitantly positive stance being taken within the London market, towards a relatively strong close.   The London market ended the day on a positive note and with 80.9% of the earlier gains of the day intact, while the New York market ended the day on a likewise and perhaps even more positive note and with 85.4% of the earlier gains of the day intact.   This close assists to paint a more positive technical picture for the more volatile New York market and might assist to buoy confidence and one might expect to see a close to steady start for the markets for early trade today against the prices set yesterday, as follows: 

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

MAY     2163 + 18                                             MAY   142.90 + 1.80

JUL      2190 + 17                                              JUL    145.55 + 2.05

SEP      2199 + 19                                             SEP    147.85 + 2.10

NOV     2198 + 17                                              DEC   151.30 + 2.10

JAN      2194 + 17                                             MAR   154.70 + 2.10

MAR     2192 + 17                                             MAY   156.85 + 2.15

MAY     2194 + 17                                              JUL    158.60 + 2.05

JUL      2202 + 17                                              SEP    160.25 + 2.05

SEP      2210 + 17                                              DEC   162.45 + 2.10

NOV     2217 + 17                                              MAR   164.55 + 2.10