Coffee Market Report August 24 2017

The surging nature of the build-up of the still relatively modest certified washed arabica coffee stocks held against the New York market, is perhaps contributing to some degree of bearish sentiment within this market and is ahead of the start of the new Mexican and Central American crop.  This new crop and one that is being forecasted to be approximately 1 million bags or 5% larger than the previous crop, is due to start coming to the consumer markets within the next three months.   Accompanied by the start of the new Colombian main crop, which shall start to impact in two months’ time. 

This is aside from the forecasts for an approximate 10% larger new Vietnam crop and one that is dominated by robusta coffees, which is due to start impacting in three months’ time, which is a factor that is likely to cap the fortunes of the London market.   Albeit that with only very modest carryover stocks being held within the country, that it is unlikely to result in a surge of aggressive new crop selling and more than likely, one shall see the farmers showing a degree of price resistance and a resulting slow and steady delivery of their new crop coffees. 

This potential for increased coffee supply to the consumer markets is over and above the evidence of substantial main stream consumer industry coffee stocks, which is a factor that is seemingly negating the supportive influence for the markets, which comes with the smaller new Brazil arabica coffee crop this year.  To see the funds who had recently been liquidating their extensive net short sold position within the New York market, once again becoming short sellers into this market.  

The General Administration of Customs in China have reported that the countries coffee imports for the first seven months of this year were an impressive 33.17% higher than the same period last year, at a total of 60,474 metric tons.   These imports dominated by the 26,655 metric tons or 44.08% share coming from Vietnam and followed, by the 10,083 metric tons 16.67% share coming in from Indonesia and presumably, mostly robusta coffees from both origins. 

The coffee imports into China and while relatively modest in nature in terms of the country’s population and perhaps easily able to extrapolate to an approximate import demand of 103,670 metric tons per annum, are countered by the volume of Chinese coffee exports that re-exports.   In this respect, the same report from the General Administration of Customs in China have indicated that the country exported a larger 29.89% volume of 78,549 metric tons of coffee, over the same seven-month period. 

These coffee exports which were 16.8% higher than the same period in the previous year and perhaps including some reexports of imports, were dominated by the 27,505 metric tons or 35.02% sold to Hong Kong and perhaps with much of this for reexport and followed, by the 16,689 metric tons or 21.25% sold to Germany and the 7,292 metric tons or 9.28% sold to Belgium. 

One might question though that while these Chinese coffee exports are impressive in terms of their larger volumes as related to the Chinese coffee imports, if there might not be some significant volumes of unofficial cross border imports of coffee still coming into the country from Vietnam.   Thus, the possibility that China is rather a net importer than a net exporter of coffee, but whatever the case the numbers in terms of global coffee production and consumption remain relatively modest and are unlikely to have any impact upon coffee market sentiment. 

The November to December contracts arbitrage between the London and New York markets broadened yesterday, to register this at 33.45 usc/Lb., while this equates to 25.99% 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 12.145 bags yesterday; to register these stocks at 1,652,122 bags.  There was meanwhile a larger in number 28,262 bags increase in the number of bags pending grading for this exchange; to register these pending grading stocks at 117,099 bags. 

The commodity markets had another mixed day yesterday, but with U.S. dollar once again falling back a little in value and impacting within many markets, the overall macro commodity index took a more positive track for the day.    The Oil, Sugar, Cotton, Orange Juice, Wheat, Gold and Silver markets had a day of buoyancy, while the Natural Gas, Cocoa, Coffee, Copper, Corn and Soybean markets had a softer day’s trade.  The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.36% higher, to see this Index registered at 395.53.  The day starts with the U.S. Dollar showing a degree of buoyancy and trading at 1.278 to Sterling and at 1.179 to the Euro, while North Sea Oil is steady and is selling at $ 52.50 per barrel. 

The London and New York markets started the day yesterday on a positive note, but with the London market soon slipping back to par and followed by the New York market, to see both markets taking a steady sideways track into the early afternoon trade.   As the afternoon progressed the London market struggled to stay close to par and the New York market maintained a degree of buoyancy, but to see the London market coming under pressure and falling deeper into negative territory, while the New York market finally faltered and slipped back into modest negative territory.  

The London market ended the day on a very negative note and with 97.2% of the earlier losses of the day intact, while the New York market ended the day on a negative note and with 61.5% of the earlier losses of the day intact.   This late in the day soft close does little to inspire and might encourage little better than a hesitant close to par start for early trade today against the prices set yesterday, as follows: 

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

SEP    2131 – 27                                             SEP    126.25 + 0.45

NOV   2100 – 35                                              DEC   128.70 – 0.40

JAN    2065 – 26                                             MAR   132.30 – 0.40

MAR   2053 – 23                                             MAY   134.65 – 0.40

MAY   2057 – 23                                             JUL    136.95 – 0.35

JUL    2073 – 23                                             SEP    139.25 – 0.25

SEP    2074 – 25                                             DEC   142.60 – 0.10

NOV   2084 – 25                                             MAR   145.80 unch

JAN    2090 – 25                                             MAY   147.85 + 0.10

MAR   2095 – 25                                             JUL    149.90 + 0.30