Coffee Market Report June 13 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 increase their net short sold position within the market by 49.15% over the week of trade leading up to Tuesday 6th. June; to register a new net short-sold position of 27,410 Lots.   Meanwhile the longer term in nature Index Fund sector of this market decreased their net long position within the market by 4.42%, to register a net long position of 32,834 Lots on the day. 

Over the same week, the Non-Commercial Speculative sector of this market increased their net short sold position within this market by 43.28%, to register a net short sold position of 27,011 Lots.  This net short sold position which is the equivalent of 7,657,499 bags and following the period of mixed but overall more positive trade that has since followed, has most likely been marginally reduced and likewise, that of the Managed Money fund sector of the market. 

The latest Commitment of Traders report from the London robusta coffee market has seen the Speculative Non-Commercial sector of this market decrease their net long position within this market by 8.36% during the week of trade leading up to Tuesday 6th. June; to register a net long position of 18,625 Lots.  This net long position which is the equivalent of 3,104,167 bags has most likely been little changed to perhaps marginally increased again, following the period of mixed but overall more positive trade that has since followed. 

The extensive net short sold positions reported from the New York market on the part of the Managed Money Funds and the Speculative sectors of the market, would perhaps indicate that the downside potential of the market might be limited.   However, for the present there has been little in the way of fundamental news coming to the markets to counter the overbearing pressure of the substantial consumer market coffee stocks, which with no frightening news coming to the fore from Brazil at present, tend to dampen speculative spirits within the market. 

Following the smaller new robusta coffee crop in Vietnam that was harvested over the period from October 2016 to January 2017 and followed by good volume sales to the countries exporters, the internal market farm stocks are seen to be relatively low, which is resulting on increasing price resistance on the part of the farmers and the internal traders for the dwindling stocks.    There is of course no official clarity on the coffee stock levels within the country, but indications are that as at the end of last month that exporters with forward contract commitments to fulfil in hand were holding approximately 6.5 million bags of stocks, while the overall national stocks were only a relatively modest 9 million bags. 

One might comment that if these numbers were correct and with Vietnam now having a domestic market demand of approximately 3 million bags per annum, that the country shall require at least 1.25 million bags of coffee to last through to October this year and the impact of the early coffees from the new crop.  This would further indicate that it would leave little better than 1.3 million bags of coffee per month available for export over the period June to November, with no stocks available to cater for any possible delay in the start of the deliveries from the new crop. 

The potentially tightening supply from Vietnam, is very much a fundamental supportive factor for the London market, which is evident from the modes nature of the prevailing arbitrage between the London and New York markets.   While the situation in Vietnam and with little contribution expected from the relatively modest new Brazil conilon robusta crop this year, is assisting to buoy export differentials and value for the robusta coffees coming to the fore from Indonesia, India, Uganda and West Africa.  

The new Vietnam crop is with the prevailing fair-weather conditions being forecasted to be a larger crop, but even if the crop is between 2 million to 3 million bags larger as many predict, the liquidation of Vietnams robusta coffee stocks during this year, would most likely result in continued internal market price resistance for new crop coffee sales.   This is potentially a factor that would continue to buoy robusta coffee prices and the fortunes for the London coffee market, into the coming year.   

The September to September contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 36.90 usc/Lb., while this equates to 28.43% price discount for the London Robusta coffee market.   

The Certified washed Arabica coffee stocks held against the New York exchange were seen to increase by 1,398 bags yesterday; to register these stocks at 1,511,228 bags.  There was meanwhile a larger in number 1,584 bags decline to the number of bags pending grading for this exchange; to register these pending grading stocks at 20,989 bags. 

It was a mixed but generally soft day for the commodity market yesterday, with the overall macro commodity index taking a softer track for the day.    The Oil, Cocoa and Coffee markets had a day of buoyancy, while the Natural Gas, Sugar, Cotton, Copper, Orange Juice, Wheat, Corn, 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 0.72% lower, to see this Index registered at 402.75.  The day starts with the U.S. Dollar showing a degree of buoyancy and trading at 1.267 to Sterling and at 1.119 to the Euro, while North Sea Oil is steady in early trade and selling at $ 46.95 per barrel. 

The London market and New York markets started the day on Friday with early buoyancy and maintained this track into the early afternoon trade, which set a positive base for further gains within the New York market.    As the afternoon progressed the New York market soon hit something of a ceiling and while the London market took a positive sideways track for the rest of the day, the New York market retreated into more modest positive territory. 

The London market ended the day on a very positive note and with 96.4% of the earlier gains of the day intact, while the New York market ended the day on more modestly positive note and with only 35.2% of the earlier gains of the day intact.  This close and with the New York market struggling to remain in positive territory does little to inspire and one might think that the markets might nevertheless be due for a steady start for early trade today against the prices set yesterday, as follows: 

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

JUL    2030 + 28                                            JUL     127.60 + 1.05 

SEP    2048 + 27                                            SEP    129.80 + 0.95

NOV   2038 + 27                                            DEC    133.30 + 0.95

JAN    2016 + 25                                            MAR   136.80 + 0.90

MAR   1999 + 23                                            MAY   139.10 + 0.85

MAY   2000 + 25                                            JUL    141.30 + 0.80

JUL    2013 + 25                                            SEP    143.35 + 0.80

SEP    2025 + 25                                            DEC   145.90 + 0.90

NOV   2032 + 25                                            MAR   148.40 + 1.00

JAN    2039 + 25                                            MAY   149.45 + 1.00