Coffee Market Report October 19 2016
The London market is tending to head towards an inverted structure at present, which shall make the carry of robusta coffee stocks by the trade and for the exporters within the robusta coffee countries financially more difficult, which shall tend to lead towards more of a hand to mouth trade for robusta coffee on the short term. This structure for the market underpinning the factor that for the short term and with the new Vietnam robusta coffee crop looking to trade within a consumer market with little in the way of competition from the lack of Brazil conilon robusta coffees and limited availability of Indonesian robusta coffees, until the new crops from both these countries starts to impact in May next year.
In the meantime, the question remains with the rain delayed new Vietnam robusta coffee crop only really due to start being harvested in volume over November and December, how large this new crop shall be. Many of the forecasts are so far are indicating a new Vietnam crop of closer to 25 million bags and including less than 24 million bags of robusta coffee, which with domestic consumption aside, would indicate only close to 22 million bags of new crop robusta coffees available for export.
There are of course the carryover robusta coffee stocks into this new October 2016 to September 2017 coffee year of at a guess in excess of 4 million bags, but much of this shall be required to fuel the forward sold export commitments by Vietnam exporters for the months of October and November, as shall again be the case for the end of this new coffee year. Thus indicating that robusta coffee availability from Vietnam for export during this new coffee year, shall not be much more than 24 million bags. A significantly lower number than was the case with exports during the last coffee year and with almost no exports expected in terms of Brazil conilon robusta coffees as against the aggressive selling of these coffees at this time last year, the prospects for tighter robusta coffee supply over the next seven months are seemingly realistic and this is clearly reflected by the rising support being seen for the London market.
This said and so long as global coffee weather conditions do not turn sour so as to damage the crop potential in Central and South America for next year and likewise for Asia and Africa, there is no question that there shall be sufficient coffee availability on the medium to longer term. Especially so as the consumer market stocks have entered the new October 2016 to September 2017 coffee year with approximately 13 weeks of roasting demand cover. But with producer stocks having started the new coffee year at relatively low levels, the risk factor or longer term overall coffee tightening supply continues to support the prevailing bullish sentiment that prevails within the coffee markets. Albeit that with the funds already holding significant long positions within the markets, one might question the shorter term upside potential for the markets and with the possibility that a wet November for Brazil, might trigger some degree of profit taking selling for the volatile New York market.
The March to March contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 64.59 usc/Lb., while this equates to a 39.82% price discount for the London robusta coffee market. This arbitrage is perhaps becoming a less 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 2,460 bags yesterday; to register these stocks at 1,274,911 bags. There were meanwhile a larger in number 5,060 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 30,321 bags.
The Certified Robusta coffee stocks held against the London exchange were seen to decrease by 333 bags or 0.01% over the week of trade leading up to Monday 17th. October, to register these stocks at 2,286,500 bags, on the day.
The commodity markets had a mixed but relatively steady day yesterday and with most markets trading within a narrow range, to see the overall macro commodity index taking a marginally positive sideways steady track for the day. The U.S. Oil, Natural Gas, Cocoa, Cotton, Orange Juice, Corn, Soybean, Gold and Silver markets had a day of buoyancy and the Coffee markets were an item with a day of positive muscle, while the Brent Oil, Sugar, Copper and Wheat markets were marginally softer for the day. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.19% higher; to see this Index registered at 419.47. The day starts with the U.S. dollar steady and trading at 1.223 to Sterling and 1.101 to the Euro, while North Sea Oil is showing a degree of buoyancy in early trade and trading at 49.85 per barrel.
The London and New York markets started the day yesterday on a positive note and maintaining this stance into the early afternoon trade, when there was a brief dip towards par on the part of the New York market, before both markets took a positive upside track to add more value. The markets did however encounter something of ceiling and with the London market settling to take a positive sideways track for the rest of the day, while the New York market lost some weight against profit taking and price fixation selling pressure, through to the close. The London market ended the day on a very positive note and with 84.6% of the earlier gains of the day intact, while the New York market ended the day on a more modestly positive note and with only 66% of the earlier gains of the day intact. This close and with the charts printing a positive picture assists to buoy confidence, but following the gains over the past few days one might expect to see a degree of caution coming to the fore and only a near to steady start for early trade today against the prices set yesterday, as follows:
LONDON ROBUSTA US$/MT NEW YORK ARABICA USc/Lb.
NOV 2125 + 39 DEC 158.75 + 1.65
JAN 2153 + 44 MAR 162.20 + 1.65
MAR 2152 + 44 MAY 164.20 + 1.65
MAY 2153 + 45 JUL 166.10 + 1.60
JUL 2155 + 47 SEP 167.75 + 1.55
SEP 2159 + 48 DEC 169.85 + 1.30
NOV 2168 + 49 MAR 171.60 + 1.10
JAN 2178 + 49 MAY 172.55 + 1.00
MAR 2185 + 49 JUL 173.45 + 0.90
MAY 2188 + 49 SEP 174.30 + 0.80