Coffee Market Report June 28 2017

The physical coffee trade remains in the doldrums for the present, with only lacklustre trade being witnessed within the main consumer markets and matched by lacklustre selling activity on the part of most producers for the present.  Leaving direction very much in the hands of the speculative and fund sectors of the market and particularly so, for the volatile New York market.   

Fundamentally the markets encounter general perception that with the contribution of a lower Brazil arabica coffee crop this year, that the arabica coffee supply shall start to tighten up and remain so, for at least the first nine months of the forthcoming October 2017 to September 2018 coffee year.   While despite the forecasts for a larger new Vietnam robusta coffee crop for the end of the year, the liquidation of present stocks and the prospects for very modest carryover stocks, would indicate that there shall likewise be a relatively tight supply of robusta coffees through to the advent of the new Indonesian and Brazilian robusta coffee crops coming into play in April and May next year, respectively.  

However there remains something of a cloud over the markets for the present, in the form of the large volumes of coffee stocks that are being held within the mainstream consumer markets, which counter the market supportive effects of tightening producer coffee supply.  This factor in terms of industry drawdown of some of the stocks ahead of the new Mexican, Central American and Colombian main crop that is due to start coming into play at the end of the year, might however start to decline in influence in the coming months.  Thus, suggesting the potential for some degree of change in sentiment for the leading New York arabica coffee market during the third quarter of the year, on the part of the presently short sold Speculative and Managed Money Fund sectors of the market. 

While perhaps the most influential factor that could come to the fore is the weather news and while for the present the weather conditions for coffee producers globally are stable and do not forward supportive sentiment for the coffee markets, there is the uncertainty of the next Brazil spring and summer rain season to the fore.   If the rains come on time by early October and indicating average to good rains to the fore that would support forecasts for a significantly larger new Brazil coffee crop in 2018 it is likely to once again dampen speculative spirits within both coffee markets, but any delay of disappointment in the quality of the rains, could prove to be a spark to light a fire under the New York market and to a lesser extent, under the already relatively strong London market.   

The September to September contracts arbitrage between the London and New York markets broadened yesterday, to register this at 30.68 usc/Lb., while this equates to a 24.49% 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 1,245 bags yesterday; to register these stocks at 1,510,403 bags.  There were meanwhile a larger in number 5,015 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 66,811 bags. 

The Certified Robusta coffee stocks held against the London exchange were seen to decrease by 27,167 bags or 0.98% during the week of trade leading up to Monday 26th. June, to see these stocks registered at 2,754,500 bags, on the day. 

The commodity markets had a positive day yesterday on the back of the news of an IMF cut in its U.S. growth prospects and the news of improved growth forecast for the Euro zone that came from the European Central Bank, which assisted to add more muscle to the Euro and to weaken the U.S. dollar.   While there were also more bullish growth forecasts coming to the fore from China and indicating increased demand, which all assisted to buoy the overall macro commodity index for the day.   The Oil, Natural Gas, Sugar, Cocoa, New York arabica Coffee, Cotton, Copper, Orange Juice, Wheat, Corn and Soybean markets had a day of buoyancy and the Gold and Silver markets were steady for the day, while the London robusta Coffee bucked the trend to be marginally softer for the day.   The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.47%higher, to see this Index registered at 391.58.  The day starts with the U.S. Dollar tending softer and trading at 1.281 to Sterling and at 1.136 to the Euro, while North Sea Oil is showing a degree of buoyancy and is selling at $ 45.80 per barrel. 

The coffee markets started the day yesterday with the London market trading marginally south of par, while the New York market started the day with follow through modest buoyancy and with the markets maintaining this mixed stance through to early afternoon trade.   As the afternoon progressed the New York market picked up support and extended its gains and the London market briefly moved into positive territory but the excitement was short lived and the New York market once again lost some weight and headed back into negative territory and matched by the London market, which likewise took the road south.   But with the markets recovering and with the New York market moving back into positive territory, while the London market recovered much of its losses. 

The London market ended the day on a modestly negative note but having recovered 84.6% of the earlier losses of the day, while the New York market ended the day on a positive note and with 42.1% of the earlier gains of the day intact.   This close and with the weaker U.S. dollar in play might be seen to be constructive for sentiment and one might expect to see the markets 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    2073 – 3                                              JUL     122.75 + 0.80 

SEP    2086 – 4                                              SEP    125.30 + 0.80

NOV   2066 + 1                                               DEC   128.80 + 0.75

JAN    2041 – 2                                              MAR   132.30 + 0.80

MAR   2026 – 5                                              MAY   134.60 + 0.70

MAY   2027 – 7                                              JUL    136.85 + 0.75

JUL    2043 – 13                                            SEP    138.95 + 0.75

SEP    2061 – 13                                            DEC   141.80 + 0.80

NOV   2070 – 13                                            MAR   144.55 + 0.80

JAN    2077 – 13                                            MAY   146.20 + 0.80