Coffee Market Report October 21 2016

The Brazilian analysts Safras & Mercado who had estimated the just completed new Brazil coffee crop at 54.9 million bags, have estimated that by Tuesday this week, that farmers had sold 56% of their new crop coffees, as against a 53% factor at the same time last year and an average of over 50% in the previous years.   This is not unexpected as with the new crop and following a dismal new conilon robusta coffee crop and supply dominated by arabica coffees while the reference prices of the New York market have been kind of late for the coffee farmers, one would have expected some more active selling activity. 

Added to this was the report from Brazil’s largest coffee cooperative Cooxupe, who have reported that they by Tuesday this week, their warehouses had received a record 6 million bags of new crop coffees.   These coffees coming from arabica coffee farmers from the South Minas, Triangulo Mineiro, Mogiana, Minas Gerais and Sao Paulo growing districts.  This report underpinning the view that Brazil has indeed, had a bumper arabica coffee crop this year. 

The more southern coffee districts of Brazil in terms of Parana, Sao Paulo and South Minas have reported reasonable rains this week, with forecasts for good rains to come to all of the main South Eastern Brazil coffee districts in the coming week.  This to include the long suffering conilon robusta coffee districts within the northern districts of the state of Espirito Santo, which shall hopefully so long as Brazil does indeed have a normal rain season this summer, trigger the start of some degree of recovery for the countries conilon coffee farmers.  

Meanwhile the Brazil government auctions of their aged arabica coffee retention stocks continue, with this week’s auction selling approximately 80,000 bags.   These relatively inexpensive coffees being destined for the price competitive domestic market blends.  

The International Coffee Organisation have come to the fore with a report that indicates concerns over longer term global coffee supply, due to declining profits being experienced by coffee farmers within many of the traditional coffee growing countries.   The report which is related to research in Brazil, Colombia, Costa Rica and El Salvador makes note that coffee prices have on average remained within a steady trading range over the past decade, whereas there has been steady production cost inflation that is negating the profitability of coffee farming. 

This scenario would suggest that it is threatening to inspire farmers to look too other more stable and profitable crop options, but one might suggest that tightening supply shall prove to be a profitable factor for the coffee farmers who stand firm and remain within the industry.  Thus one might think that while many coffee farmers have indeed been struggling over the past couple of years, that the majority might remain committed and look towards improved farm husbandry and improved yields, so as to profit from their coffee production. 

The March to March contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 63.15 usc/Lb., while this equates to a 39.62% 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 146 bags yesterday; to register these stocks at 1,275,197 bags.  There were meanwhile a smaller in number 2 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 31,548 bags. 

The commodity markets continue to encounter the negative influence of the renewed muscle of the U.S. dollar yesterday, to see the overall macro commodity index take a softer track for the day.  The Oil, Sugar, New York arabica Coffee, Cotton and Corn markets registered a significant dip in value for the day, while the Natural Gas, Cocoa, London robusta Coffee, Copper, Orange Juice, Wheat, 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 0.71% lower; to see this Index registered at 417.54.   The day starts with the U.S. dollar showing a degree of buoyancy and trading at 1.224 to Sterling and 1.091 to the Euro, while North Sea Oil is near to steady and trading at 50.15 per barrel. 

The London and New York markets started the day yesterday with light selling pressure in play and taking a softer track into the early afternoon trade, when the London market started to attract support and moved back into modest positive territory.  The New York market soon followed suit but the recovery was short lived and as the afternoon progressed and with the negative nature of the overall macro commodity index having some influence upon sentiment within the volatile New York market, both markets moved back into negative territory and set a softer tone for the rest of the day’s trade.   The London market ended the day on a modestly softer note and having recovered 56.2% of the earlier losses of the day, while the New York market ended the day on a soft note and with 76.5% of the earlier losses of the day intact.    This close and with the strong U.S. dollar in play does little to inspire, but with Brazil Real having firmed to close to 3.13 to the U.S. dollar and likely to subdue Brazilian selling pressure later in the day, one might expect to see a cautious 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     2095 – 9                                                 DEC   155.90 – 1.95

JAN      2122 – 7                                                MAR   159.40 – 1.95

MAR     2122 – 8                                                MAY   161.65 – 1.85

MAY     2123 – 10                                                JUL   163.55 – 1.80

JUL      2127 – 11                                                SEP   165.30 – 1.70

SEP      2131 – 11                                               DEC   167.60 – 1.50

NOV     2140 – 12                                               MAR   169.50 – 1.35

JAN      2148 – 12                                               MAY   170.40 – 1.40

MAR     2155 – 12                                                JUL   171.30 – 1.40

MAY     2158 – 12                                                SEP   172.20 – 1.40