Coffee Market Report October 28 2016
The State Statistical Department in Vietnam and with customs export registration data at hand, have forecasted that coffee exports of mostly robusta coffees for the month of October shall prove to be 47.7% higher than the same month last year, at a total of 2.17 million bags. This figure is well ahead of the earlier forecasts on the part of the country’s coffee trade and exporters, who had been forecasting exports at between 1.17 million and 1.67 million bags.
One might comment however, that these exports ahead of the rain delayed new crop harvest would have liquidated a good percentage of the carryover stocks from the previous crop, which shall dictate that there is good reason now for Vietnam to soon start to build up harvest volumes. While with no competition from Brazil following the countries dismal new conilon robusta harvest this year and limited competition from the relatively tight supply of robusta coffees from Indonesia and Uganda, it has left the consumer markets looking to Vietnam for steady short term robusta coffee supply.
The Brazil real has slipped back from its recent highs and is presently trading at 3.16 to the U.S. dollar, which with the support of the buoyancy in value for the reference prices of the New York market, has assisted to increase selling activity of new crop arabica coffees within the internal market in Brazil. There has included some noticeable activity in terms of the selling of lower grade arabica coffees, with domestic roasters looking to these coffees to supplement for the tight supply of conilon robusta coffees.
Sales of new crop arabica coffees is not the issue though, as the market focus is now firmly upon the prospects for the next 2017 Brazil crop, with many early forecasts having talked of the negative effects of biennial bearing following this year large new arabica harvest. However, this week has seen good rains over all of the main arabica coffee districts and with the rains due to carry on into early next week, with many now forecasting that the biennial bearing dip in the next year’s crop potential, not likely to be as severe as has previously been suggested.
But this does not yet allay the fears that with limited conilon robusta coffee supply until the next crop and the resulting increased demand from the domestic roasting industry in Brazil for arabica coffees, that there shall be little in the way of carryover arabica coffee stocks into the next 2017 crop. Thus, even if the next crop is close to this year’s crop it would not be seen to be a bearish factor for the longer-term market, even though with the potential increase in global washed arabica coffee supply for this new October 2016 to September 2017 coffee year, these finer cupping coffees will assist to take some of the bite out of the longer term tightening in natural arabica coffee supply to the consumer markets.
One might comment though that if the Brazilian farmers truly believed in some of the more pessimistic forecasts for a sharply lower 2017 arabica coffee crop, they would not be selling their new crop stocks at what are still negative differentials to the reference prices of the New York market. Thus unless there are some unforeseen weather related reasons to damage the new crop potential, one might rather believe that the farmers foresee a reasonable arabica coffee crop for next year.
There are though continued concerns over the prospects for next year’s conilon robusta coffee crop in Brazil, as while the northern conilon robusta coffee districts in Rondônia and south Bahia have had good rains and are looking towards a good crop next year, the important conilon robusta coffee districts in the north of Espirito Santo have so far had only very modest rains. These rains so far not sufficient in volume to assist the drought damaged trees on many of the farms that do not have the advantage of supplementary irrigation, to recover towards next year’s new crop. Presently indicating that there might not be much improvement for Brazil’s overall conilon robusta coffee production for the coming year and perhaps even more serious, following what many are forecasting to be a smaller new crop harvest in Vietnam.
The March to March contracts arbitrage between the London and New York markets broadened yesterday, to register this at 69.78 usc/Lb., while this equates to a 41.46% 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 were seen to decrease by 127 bags yesterday; to register these stocks at 1,274,887 bags. There were meanwhile a larger in number 704 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 23,830 bags.
The commodity markets despite the continue muscle of the firm U.S. dollar yesterday, attracted good overall support for the day, to see the macro commodity index taking a positive track for the day. The Oil, Natural Gas, New York arabica Coffee, Cotton, Copper, Orange Juice, Wheat, Corn, Soybean and Gold markets had a day of buoyancy and the London robusta Coffee and Silver markets were steady for the day, while the Sugar and Cocoa 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 424.48. The day starts with the U.S. dollar steady and trading at 1.216 to Sterling and 1.090 to the Euro, while North Sea Oil is steady and is selling at 49.10 per barrel.
The London market started the day yesterday on a corrective softer note, but with both markets drifting back up to par and taking a modestly positive track into the early afternoon trade. As the afternoon progressed and with the New York market in line with the positive nature of the macro commodity index taking a sharp upside move, both markets hit a ceiling and with sell stop triggered they took a sharp move back into negative territory. This was however short lived and the London market recovered back up to around par, while the New York market moved back into positive territory. The London market ended the day on a near to steady note and having recovered 70% of the earlier losses of the day, while the New York market ended the day on a positive note and with 41.5% of the earlier gains of the day intact. The recovery for the New York market and despite the apparent overbought picture that the markets is showing, might well inspire some degree of confidence for a follow through near to steady start for early trade today against the prices set yesterday, as follows:
LONDON ROBUSTA US$/MT NEW YORK ARABICA USc/Lb.
NOV 2170 + 16 DEC 164.80 + 1.10
JAN 2175 – 3 MAR 168.30 + 1.10
MAR 2172 – 4 MAY 170.40 + 1.05
MAY 2180 – 1 JUL 172.15 + 1.00
JUL 2185 + 4 SEP 173.80 + 1.00
SEP 2192 + 9 DEC 175.95 + 1.00
NOV 2198 + 12 MAR 177.70 + 1.05
JAN 2205 + 13 MAY 178.65 + 1.05
MAR 2214 + 13 JUL 179.55 + 1.10
MAY 2217 + 13 SEP 180.40 + 1.10