Coffee Market Report July 31 2017

The latest Commitment of Traders report from the New York arabica coffee market has seen the Non-Commercial Speculative sector of this market decrease their net short sold position within the market by 19.64% during the week of trade leading up to Tuesday 25th. July; to register a net short sold position of 24,703 Lots on the day. This net short-sold position which is the equivalent of 7,003,191 bags has most likely been further reduced, following the period of more positive trade, which has since followed. 

With the month of July coming to a close and with the coffee export registrations in hand, the Vietnam customs authorities have estimated that the countries coffee exports of mostly robusta coffees for the first seven months of this year shall be approximately 16% lower than the same period in the previous year, at a total of 15,683,333 bags. 

This number in terms of the lower coffee crop that was harvested over October 2016 to January 2017 was to have been expected, while with a domestic consumption of close to 3 million bags per annum and despite carryover stocks of approximately 4 million bags into the new crop and much of the stocks at hand at present required to cover forward contract commitments, there can be expected to be tighter new business supply due until at least November this year. 

Reuters have concluded a poll of eight leading coffee trade houses and have estimated that the New York arabica coffee market is likely to end the year with prices close to 150.00 usc/Lb., while the poll estimates that the London robusta coffee market shall end the year with prices close to $ 2,100.00 per Mt.   Thus, indicating that the arbitrage between the New York arabica coffee market and the London robusta coffee market would broaden to 54.75 usc/Lb., which would offer a 36.5% price discount for the London market.  

This poll reflecting the generally expected view that with a smaller Brazil arabica coffee crop this year as against a larger new Vietnam robusta coffee crop that is due to be harvested at the end of the year, that there shall be an easing in robusta coffee supply, as against a tightening of arabica coffee supply.   Albeit that with declining robusta coffee stocks within Vietnam this year that despite a larger new crop, there should not be expectations for surging robusta coffee supply to fuel the steadily growing demand that one can expect for the coming year. 

Noting that new market coffee consumption growth and by nature of the price sensitivity of these new Asian markets that heavily influence this overall growth, is heavily weighted towards the use of robusta coffees.   Thus, one would think that even with a fair Indonesian robusta coffee crop and a follow through reasonable Ugandan and Indian robusta coffee crops for next year, that one might not expect to see over supply of robusta coffees for at least the first half of next year.   The one question might be, what might be the size of next year’s new Brazil conilon robusta coffee crop as if it proves to be a larger crop than this year, it might result in the release of some volumes of conilon coffees for the consumer markets for the second half of next year.   

West Africa’s largest robusta coffee producer and Africa’s second largest robusta coffee producer after Uganda the Ivory Coast, has reported that the countries coffee exports for the first six months of this year were 319,617 bags or 49.94% lower than the same period during last year, at a total of 320,400 bags.    This in terms of the earlier forecasts for the country to export close to a million bags of robusta coffee this year is a somewhat dismal number and with the international robusta coffee prices seemingly coming off the boil at present, it might indicate that coffee exports for this year might struggle to meet the target. 

The September to September contracts arbitrage between the London and New York markets broadened on Friday, to register this at 41.28 usc/Lb., while this equates to a 29.95% 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 853 bags on Friday; to register these stocks at 1,544,497 bags.  There were meanwhile a larger in number 5,351 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 44,123 bags. 

The commodity markets were mostly on an upside track on Friday, to see the overall macro commodity index taking a positive stance for the day.  The Oil, Cocoa, New York arabica Coffee, Cotton, Copper, Wheat, Corn, Soybean, Gold and Silver markets had a day of buoyancy, while the Natural Gas, Sugar, London robusta Coffee and Orange Juice markets had a softer day’s trade.   The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.49% higher, to see this Index registered at 410.80.  The day starts with the U.S. Dollar steady and trading at 1.311 to Sterling and at 1.173 to the Euro, while North Sea Oil is showing a degree of buoyancy and is selling at $ 52.25 per barrel. 

The London and New York markets started the day on Friday on a marginally softer note, to see both markets taking a softer track into the early afternoon trade.    However, as the afternoon progressed the New York market recovered and headed back into positive territory, while the London market moved back to trade either side of par.   The New York market and lacking producer selling pressure while gaining support from speculative short covering retained its positive stance for the day, but with the London market remaining under pressure and remaining mostly within negative territory. 

The London market ended the day on a soft note and with 60% of the earlier losses of the day intact, while the New York market ended the day on a positive note and with 64.4% of the earlier gains of the day intact.    This close tends to assist to paint a modestly positive picture for the New York market, but a somewhat uncertain picture for the London market and is likely to inspire a near to steady start for early trade today, against the prices set on Friday, as follows:  

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

JUL    2141 – 18  

SEP    2129 – 12                                            SEP    137.85 + 1.90

NOV   2117 – 8                                               DEC   141.40 + 1.90

JAN    2092 – 5                                               MAR   144.95 + 1.90

MAR   2077 – 3                                               MAY   147.20 + 1.90

MAY   2085 – 1                                                JUL    149.30 + 1.90

JUL    2101 unch                                            SEP    151.30 + 1.90

SEP    2111 unch                                            DEC   154.15 + 1.85

NOV   2124 unch                                            MAR   156.85 + 1.80

JAN    2131 unch                                            MAY   158.40 + 1.80