Coffee Market Report May 05 2017

Reports from Brazil with the new crop conilon robusta coffee harvest progressing well are that both the quality and yields are proving to be better than expectations, which is good news for the countries domestic roasters and value add soluble coffee industries.  Thus, for the present and with the countries arabica coffee farmers mostly a few weeks ahead of starting their new crop harvest, it is a settled situation within Brazil and no scare stories expected to come to the fore and to excite the market. 

Weather wise there is a cold front moving into southern Brazil at present and bringing with it some late in the season rains for the main arabica coffee districts within the country, which shall assist to build up the ground water retention levels, ahead of the cold and dry winter harvest season.  Noting that good ground water retention levels assist to keep the trees moist and thus, less vulnerable to damage from any light frosts. 

With the new summer rain season now in play over Vietnam, there would appear to be fair rains to support the development of the new crop and so far, no fears of any problems for this forthcoming year end crop.   A crop that most forecast to be likely to be a larger new crop, which shall support good volumes of global robusta coffee for the coming year.   

Thus, for the present and with no significant weather concerns being voiced from Central America, Colombia, Peru, Africa, Indonesia and India, the coffee markets are not a field for the bulls to graze within.   However, while there are presently no fundamental factors to excite and support the markets there is no question that this year is a year of global deficit coffee supply and while only a modest deficit and countered by high levels of consumer market coffee stocks, is a factor that is likely to be supportive for the markets to retain some degree of buoyancy. 

But while it is of no influence on the direction that funds might wish to take in terms of commodity market prices, one has to be concerned over the influence of the relatively soft prices of the New York market upon longer term production levels.   Taking note that thirty-six years ago and the introduction of the producer price supportive quotas that were accepted by all the consumer and producer members of the International Coffee Organisation, that a price range of 120 usc/Lb. to 140 usc/Lb., was considered to be a fair price for the producers. 

Inspiring one to comment that with the steady inflation in terms of costs of capital equipment, farm inputs, labour etc. over the past three and half decades and with coffee still mostly labour intensive, value offered by the dictates of the prevailing New York price range at present, does not assist arabica coffee farmers to continue to afford the investment required to maintain high yielding crops.  Thus, threatening unless there is soon to be some degree of positive price correction, a longer-term stalling and perhaps even a tail off in global arabica coffee production.  But the resulting price recovery might perhaps come too late, to inspire a return to the coffee industry on the part of such farmers who had since turned to alternative crops.    

The July to July contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 44.59 usc/Lb., while this equates to 32.04% price discount for the London robusta coffee market.  This still relatively low arbitrage, remains not such 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 557 bags yesterday; to register these stocks at 1,411,381 bags.    There was meanwhile a larger in number 7,060 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 21,245 bags. 

The commodity markets and with a robusta dollar in plan and the influential Oil markets falling out of bed yesterday, had a generally weak day and with the overall macro commodity index taking a downside track for the day.   The Cocoa market nevertheless had a positive day’s trade and the Cotton and Orange Juice markets some degree of buoyancy, while the Oil, Natural Gas, Sugar, Coffee, Copper, Wheat, Corn, Soybean, Gold and Silver markets traded on a softer note for the day.  The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 1.27% lower, to see this Index registered at 403.29.  The day starts with the U.S. Dollar showing some degree of buoyancy and trading at 1.292 to Sterling and at 1.098 to the Euro, while North Sea Oil is tending softer and is selling at $ 45.55 per barrel. 

The London and New York market started the day yesterday on a modestly softer note and with both markets losing a little weight into the early afternoon trade, when with the negative influences of the overall macro commodity index perhaps playing a part additional selling pressure started to come into play for both markets and to influence further losses.    The New York market and with sell stops being triggered took something of a severe dip and to pip 5.1 usc/Lb. losses for the day, but with the market soon attracting some support on the lows and taking an upside track to set the market for more modest losses for the day, while the London market had taken more of a sideways track at close to its more modest losses for the day. 

The London market ended the day on a negative note and with 75% of the earlier losses of the day intact, while the New York market ended the day on a likewise soft note, but having recovered 51% of the earlier losses of the day by the close.   This close is not really supportive for confidence but might be viewed more as matching the overall soft nature of commodities at present rather than reason to believe in coffee being specifically due for bearish trade and thus, one might expect to see some caution coming to the fore for early trade today.  To possibly see the markets, start the day taking a near to steady stance against the prices set yesterday, as follows: 

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

MAY     1967 – 42                                              MAY   132.70 – 2.30

JUL      1992 – 42                                              JUL    134.95 – 2.50

SEP      2009 – 40                                             SEP    137.30 – 2.40

NOV     2017 – 41                                              DEC   140.80 – 2.40

JAN      2022 – 41                                             MAR   144.25 – 2.40

MAR     2022 – 39                                             MAY   146.45 – 2.45

MAY     2022 – 39                                              JUL    148.55 – 2.45

JUL      2032 – 39                                              SEP    150.50 – 2.40

SEP      2040 – 39                                              DEC   152.85 – 2.45

NOV     2047 – 39                                              MAR   155.15 – 2.45