Coffee Market Report June 29 2017

The state authorities in Vietnam have estimated that the countries coffee exports for the month of June shall be approximately 2 million bags, which they say shall contribute to the countries coffee exports dominated by robusta coffees, to being 13.82 million bags of the first six months of this year and 15.5% lower than the same period last year.   

All indications are that with internal market coffee stocks extremely low and most of the exporter held stocks already committed to fulfil forward contract export commitments, that coffee export volumes from Vietnam for the next four months shall be relatively modest.   And furthermore, even with a pickup in coffee supply with the start of the impact of the new crop from November onwards, that the countries coffee exports for this year shall be significantly lower than last year.   

There is little contribution in terms of consumer market robusta coffee supply due from the new and relatively modest conilon robusta coffee crop, which shall mostly be absorbed by the vibrant domestic coffee industry in Brazil.   However, with improved robusta coffee supply this year from Indonesia and Uganda, there will apparently be sufficient robusta coffee supply to continue to support consumer market requirements. 

One would speculate thought, that robusta coffee supply for the next four months shall nevertheless remain tight and that with the arbitrage between the reference prices of the London market and the New York market relatively narrow, that there shall be some degree of robusta coffees substitution on the part of the now price competitive lower grade and lower quality cupping arabica coffees.   A factor that might well assist to reduce the presently significant consumer market coffee stocks, which might start to contribute towards some more confidence within the presently bearish New York market. 

With the end of the second quarter of the year due tomorrow and ahead of the long weekend for many that shall come with Tuesday’s Independence Day holiday in the U.S.A., one might expect to see speculative and fund book squaring coming into play for the markets.   But it is difficult to adjudge in terms of the coffee markets and particularly so the volatile New York market, if this shall prove to be positive or negative for the markets. 

The September to September contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 29.51 usc/Lb., while this equates to a 23.72% price discount for the London Robusta coffee market.   

The Certified washed Arabica coffee stocks held against the New York exchange were seen to decrease by 4,356 bags yesterday; to register these stocks at 1,506,047 bags.  There were meanwhile a similar in number 4,167 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 70,978 bags. 

The commodity markets were mixed in trade yesterday, but with the support of the softer U.S. dollar, the trend was towards the higher side and with the overall macro commodity index taking a positive track for the day.  The Oil, Natural Gas, Cocoa, London robusta Coffee, Copper, Wheat, Soybean, Gold and Silver markets had a day of buoyancy, while the Sugar, New York arabica Coffee, Cotton, Orange Juice and Corn markets had a softer day’s trade.   The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.28%higher, to see this Index registered at 392.70.  The day starts with the U.S. Dollar tending softer and trading at 1.296 to Sterling and at 1.140 to the Euro, while North Sea Oil is showing a degree of buoyancy and is selling at $ 46.90 per barrel. 

The coffee markets started the day yesterday with the London market trading around par and the New York market showing a degree of buoyancy, to see both markets taking a steady track into the early afternoon trade.  As the afternoon progressed both markets encountered selling pressure and with the London market trading mostly marginally south of par, while the New York market slipped deeper in negative territory.   However late trade was kind to both markets and with the London market recovering and moving back into positive territory, while the New York market recovering more than half of its losses. 

The London market ended the day on a modestly positive note and with 60% of its earlier gains of the day intact, while the New York market ended the day on a negative note and with 45% of the earlier losses of the day intact.  This close does not do much to inspire but with the technical picture of the market tending to look more stable and with the softer U.S. dollar in play, one might expect to see a hesitantly steady start for early trade today against the prices set yesterday, as follows: 

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

JUL    2079 + 6                                              JUL     122.75 unch 

SEP    2092 + 6                                              SEP    124.40 – 0.90

NOV   2072 + 6                                               DEC   127.85 – 0.95

JAN    2051 + 10                                            MAR   131.35 - 0.95 

MAR   2041 + 15                                            MAY   133.70 - 0.90

MAY   2045 + 18                                            JUL    135.85 - 1.00

JUL    2063 + 20                                            SEP    137.90 - 1.05

SEP    2081 + 20                                            DEC   140.70 - 1.10

NOV   2093 + 23                                            MAR   143.40 - 1.15

JAN    2100 + 23                                            MAY   145.05 - 1.15