Coffee Market Report October 31 2016

The latest Commitment of Traders report from the New York arabica coffee market has seen the Non-Commercial Speculative sector of this market increase their net long position within the market by 30.87% during the week of trade leading up to Tuesday 25th. October; to register a net long position of 51,090 Lots on the day.  This net long position which is the equivalent of 14,483,789 bags has most likely been marginally increased, following the period of mixed but overall more positive trade, which has since followed. 

This is really an extensive net long position that is now being held within the volatile New York market and is seemingly due to the support for speculative sentiment that comes with the continued weather concerns for Brazil and its influence upon the next 2017 crop, along with the uncertainty over the prospects for the delayed new robusta coffee crop out of Vietnam.    But the overbought signals are quite strong for this market and one might expect to see some corrective profit taking coming into play and to take advantage of catch up consumer industry price fixation buying activity, which might in turn also trigger some increase in producer price fixation volumes.   Everything said, it is likely that this might be week of volatility for the New York market.   

These weather issues are however very much speculative and lack any real fundamental supportive data and by nature, should there be good follow through rains in Brazil in November, there might be something of a change of sentiment due for the New York market.   While in the meantime and with consumer market stocks more than adequate and consumer industries not yet showing any sign of panic, there is seemingly little in the way of follow through support for the markets coming through from the industry players. 

However, there are most definitely reasons to believe in a tighter robusta coffee supply through to at least May next year, when there would hopefully be improved robusta production due from Uganda and Indonesia and possibly also, for the next Brazil conilon robusta coffee crop.   Thus while one might be a bit sceptical over the muscle being shown with the New York arabica coffee market at present, one might continue to take a positive view towards the medium turn fortunes of the London robusta coffee market.  

The March to March contracts arbitrage between the London and New York markets broadened on Friday, to register this at 69.79 usc/Lb., while this equates to a 41.31% 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 increase by 1,665 bags on Friday; to register these stocks at 1,276,552 bags.  There were meanwhile a larger in number 2,605 bags increase to the number of bags pending grading for this exchange; to register these pending grading stocks at 26,435 bags. 

The commodity markets against a marginally softer U.S. dollar had a mixed day on Friday and with the overall macro commodity index taking a close to steady track for the day.   The Natural Gas, Cocoa, Coffee, Cotton, Copper, Orange Juice, Gold and Silver markets had a day of buoyancy and the Corn market was steady for the day, while the Oil, Sugar, Wheat and Soybean markets had a softer day’s trade.  The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.24% higher; to see this Index registered at 425.49.   The day starts with the U.S. dollar steady and trading at 1.219 to Sterling and 1.096 to the Euro, while North Sea Oil is near to steady and is selling at 47.00 per barrel. 

The London market started the day on Friday on a steady note, while the New York market started the day with modest buoyancy and the markets maintained this stance into early afternoon trade, when both markets slipped back into modest negative territory.   This negative stance was however short lived and as the afternoon progressed both markets started to attract support and to post a steady recovery into positive territory and to take a confident upside track, which was sustained through to the close for the London market, but with the New York market coming back off its highs in late trade.   The London market ended the day on a positive note and with 75% of the earlier gains of the day intact, while the New York market ended the day on a modestly positive note and with 33.3% of the earlier gains of the day intact.   This close and with the charts presently painting a positive picture is somewhat supportive for the sentiment, but one might suspect that with the overbought nature of the markets and the evidence of the substantial net long positions within the New York market, that there might be some degree of producer price fixation and speculative profit taking coming into play for the market for early trade today, against the prices set on Friday, as follows: 

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

NOV     2188 + 18                                               DEC   165.50 + 0.70

JAN      2187 + 12                                              MAR   168.95 + 0.65

MAR     2186 + 14                                              MAY   171.05 + 0.65

MAY     2192 + 12                                                JUL   172.85 + 0.70

JUL      2193 + 8                                                  SEP   174.50 + 0.70

SEP      2198 + 6                                                 DEC   176.75 + 0.80

NOV     2204 + 6                                                 MAR   178.50 + 0.80

JAN      2211 + 6                                                 MAY   179.50 + 0.85

MAR     2224 + 10                                                JUL   180.40 + 0.85

MAY     2235 + 18                                                SEP   181.25 + 0.85