Coffee Market Report July 27 2017

With the summer holiday season within the main northern hemisphere consumer markets in play, the physical coffee markets are relatively dull and lacklustre at present.   While with the Brazil real having firmed against the U.S. dollar and now trading at 3.14 to the dollar, there is little in the way of selling aggression of new crop coffees within the internal market in Brazil. 

One would think that with the lack of striking fundamental news coming to the coffee markets for the present and little threat of frost foreseen for the Brazil coffee districts that a degree of complacency within the physical coffee markets shall continue for the coming three to four weeks, which will leave the markets very much within the hands of the funds and the speculative sectors of the market.   With focus in terms of fundamentals behind the market now upon the start of the new Brazil spring and summer rain season, which is due to come into play in two months’ time. 

In the meantime, it is now only three months until the start of the forecasted higher volume new Vietnam crop, which might start to have some degree of impact upon the presently tightly supplied London robusta coffee market.  This and with the prospects for easing in terms of physical supply of robusta coffees for the end of the year, might start to have modest negative influence upon the presently relatively narrow arbitrage between the New York and London markets within the coming months. 

However, in terms of a larger new Vietnam robusta crop becoming due for the new October 2017 to September 2018 coffee year, one has to consider that there shall be only limited carryover stocks into this new crop.  This factor and in terms of the prevailing and growing demand from the consumer market industries for Vietnam robusta coffees, is likely to result in continued internal market price resistance and still some degree of tightness of supply for the coming year. 

The September to September contracts arbitrage between the London and New York markets broadened yesterday, to register this at 37.60 usc/Lb., while this equates to a 27.89% 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 1,015 bags yesterday; to register these stocks at 1,543,644 bags.  There were meanwhile a larger in number 15,804 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 53,458 bags. 

In terms of these certified coffee stocks the European warehouses of the exchange lying in Antwerp, Barcelona, Bremen and Hamburg account for a dominant 71.35% of the stocks, as against the USA based warehouses of the exchange, in Houston, Miami, New Orleans, New York and Virginia. 

While in terms of the origins of these certified washed arabica coffee stocks, the producer bloc of Mexico and Central America and dominated by Honduras coffees, account for 48.72% of the stocks.  Followed by Peru with a 16.09% share, Colombia with a 14.97% share, Africa with a 13.09% share, Brazil with a 4.42% share, India with a 2.22% share and Papua New Guinea with a 0.49% share of the stocks. 

The commodity markets experienced a generally positive day yesterday and with speculation over export cuts from both Saudi Arabia and Kuwait assisting to buoy the influential oil market, to see the overall macro commodity index taking a positive track for the day.   The Oil, Sugar, Coffee, Copper and Wheat markets had a day of buoyancy, while the Cocoa, 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 0.64% higher, to see this Index registered at 404.79.  The day starts with a softer U.S. Dollar steady which is trading at 1.314 to Sterling and at 1.173 to the Euro, while North Sea Oil is steady and is selling at $ 50.25 per barrel. 

The London market started the day yesterday with modest buoyancy and with the New York market trading marginally south of par, to see the markets take this mixed stance into the early afternoon trade.   As the afternoon progressed the London market and with limited volumes of producer selling over the market started to add more value, which was followed by a recovery for the New York market and with both markets taking an upside track for the rest of the day. 

The London market ended the day on a very positive note and with 95.6% of the earlier gains of the day intact, while the New York market ended the day on a likewise very positive note and with 91.3% of the earlier gains of the day intact.   This somewhat unexpected recovery might assist to contribute towards some cautious optimism and while it would take a few days of recovery to build confidence, one might expect that with a weaker U.S. dollar in play, to see a follow through steady start for early trade today against the prices yesterday, as follows:  

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

JUL    2160 + 22 

SEP    2143 + 43                                            SEP    134.80 + 4.20

NOV   2124 + 39                                             DEC   138.35 + 4.15

JAN    2094 + 32                                             MAR   141.90 + 4.15

MAR   2079 + 29                                             MAY   144.10 + 4.15

MAY   2086 + 29                                              JUL    146.20 + 4.10

JUL    2101 + 29                                              SEP    148.25 + 4.05

SEP    2111 + 29                                              DEC   151.15 + 4.10

NOV   2124 + 29                                              MAR   153.95 + 4.10

JAN    2131 + 29                                              MAY   155.50 + 4.10