Coffee Market Report September 30 2016

The latest weather forecasts from Brazil and following what has been only somewhat scattered and uneven rains for the main arabica coffee areas and relatively dismal rains for the main south eastern conilon robusta districts over the past couple of weeks, are tending to look better.   In this respect there are now expectations for good rains to start moving north for the coming week and to cover most of the main arabica coffee districts and finally, to include the dry conilon robusta coffee districts in the state of Espirito Santo.   These forecasts indicating the potential for good flowerings for the next 2017 crop to occur during the coming weeks, which many farmers would consider to be a just in time start to the spring and summer rainfall season.  

Meanwhile with the new crop harvest completed, the indications are that trade in new crop coffees has been steady and somewhat price resistant over the recent weeks, as farmers lacking volumes of carryover arabica coffee stocks and knowing that there is time to sell, are not showing much in the way of selling aggression.  While following a relatively small conilon robusta coffee crop this year, the stiff price resistance on the part of these farmers has slowed sales to only modest volumes over the past weeks.  

This tightness in conilon robusta coffee supply within Brazil and a situation that is due to carry on until at least May next year, shall limit exports of these coffees over the coming seven to eight months and with the prospects for a smaller new Vietnam robusta crop due for the last quarter of this year, it continues to buoy sentiment towards the London market.  This market being further buoyed by the pre new crop price resistance and slowing of robusta coffee sales out of Vietnam, were many are now forecasting that that the rains shall cease and the new crop harvest start a week or two late this year and at around the end of October, to only really bring new crop robusta coffees to the consumer markets for the end of the year. 

The potential longer term tightness in robusta coffee supply has meanwhile assisted to buoy sentiment with the London market and to narrow the arbitrage for the New York and London markets, which is likely to reduce the attractiveness for the price sensitive roast and ground blends within the main stream consumer markets, of the use of steam processed robusta coffees within their mostly arabica coffee blends.   

The European Coffee Federation have reported that the port ware house stocks held within the warehouses in the ports of Antwerp, Bremen, Hamburg, Genoa, Le Havre and Trieste decreased by 217,816 bags or 1.76% during the month of July, to see these stocks registered at 12,151,217 bags as at the end of the month.   Thus eliminating much of the 291,017 bags increase in the stocks, which was recorded during the week of June. 

These stocks do not however include the coffee stocks held within Europe in transit bulk containers, unreported warehouses throughout Europe, as well as on site roaster industry inventory stocks and with the combination of Eastern and Western European consumption at approximately 1 million bags per week, this would most likely be an additional estimated 2.5 million bags. It would therefore appear that European coffee stocks for the end of July would have been sufficient to cater for a very safe number of around 14.5 weeks of roasting activity. 

The November to December contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 58.98 usc/Lb., while this equates to a 39.28% 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 with the exchange were seen to decrease by 285 bags yesterday; to register these stocks at 1,266,201 bags.  There was meanwhile a similar in number 205 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 4,540 bags. 

The commodity markets had a mixed day yesterday, but with the energy markets recovering in line with the news that there might be some OPEC related price support coming to the fore, to see the overall macro commodity index remaining relatively steady yesterday.   The Oil, London robusta Coffee, Gold and Silver markets had a day of buoyancy and the Natural Gas, Copper, Wheat and Corn markets were steady, while the Sugar, Cocoa, New York arabica Coffee, Cotton, Orange Juice and Soybean markets had a softer day’s trade.  The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.28% lower; to see this Index registered at 418.76.   The day starts with the U.S. dollar steady in early trade and trading at 1.297 to Sterling and 1.122 to the Euro, while North Sea Oil is near to steady in early trade and trading at 48.05 per barrel. 

The London and New York markets opened the day yesterday with a degree of buoyancy and taking a positive track into the early afternoon trade, but with the New York market coming under pressure and dipping back into negative territory, while the London market moved back to par.   The London market did however soon recover and start on a steady upside path, while the New York market struggled to hold with its modest losses and came under pressure, to take a further step south later in the day.   The London market ended the day on a positive note and with 70% of the earlier gains of the day intact, while the New York market ended the day on a negative note and with 92.2% of the earlier losses of the day intact.   This mixed close and with the charts for the New York market tending to show a negative picture, it might inspire little better than a near to steady start for early trade today against the prices set yesterday, as follows: 

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

SEP      2005 + 14

NOV     2010 + 14                                               DEC   150.15 – 2.95

JAN      2032 + 15                                              MAR   153.50 – 2.90

MAR     2040 + 14                                              MAY   155.40 – 2.90

MAY     2047 + 14                                               JUL   157.15 – 2.85

JUL      2053 + 14                                               SEP   158.80 – 2.70

SEP      2062 + 14                                              DEC   160.85 – 2.55

NOV     2070 + 14                                              MAR   162.85 – 2.45

JAN      2080 + 14                                              MAY   163.60 – 2.35

MAR     2087 + 14                                               JUL   164.60 – 2.30