Coffee Market Report September 19 2017

The latest Commitment of Traders report from the New York arabica coffee market has seen the shorter term in nature Managed Money fund sector of this market increase their net short sold position within the market by 1.73% over the week of trade leading up to Tuesday 12th. September; to register a new net short sold position of 30,431 Lots.   Meanwhile the longer term in nature Index Fund sector of this market increased their net long position within the market by 5.81%, to register a net long position of 35,257 Lots on the day. 

Over the same week, the Non-Commercial Speculative sector of this market increased their net short sold position within this market by 2.27%, to register a net short sold position of 32,373 Lots.  This net short sold position which is the equivalent of 9,177,602 bags has most likely been reduced again, following a period of mixed but overall more positive trade that has since followed and likewise, that of the Managed Money fund sector of the market. 

The latest Commitment of Traders report from the London robusta coffee market has seen the Speculative Non-Commercial sector of this market decrease their net long position within this market by 103.01% during the week of trade leading up to Tuesday 12th. September; to register a net short sold position of 309 Lots.  This net short sold position which is the equivalent of 51,500 bags has most likely been little changed, following the period of mixed but mostly sideways trade, which has since followed. 

Following a host of early forecasts coming from cooperatives and the trade within Brazil that presuming normal weather conditions that the country would be due for a bumper crop of close to 60 million bags in 2018, there are many who are now backtracking on these forecasts.   These revised forecasts but without specific numbers being voiced, being related to speculation that following some early flowerings that came with the light rains in August, that the mostly dry conditions that have since followed, shall be damaging to the potential of these flowerings and likewise, the hot and dry conditions shall cause undue stress to many farms ahead of the coming months rains. 

It is however early days and one might comment that as there are reports of reasonable ground water retention levels for this time of the year for many of the main arabica coffee districts, that this might so long as rains are soon forthcoming, be able to assist to carry the early flowerings through.   But there is no doubt that the main coffee districts shall need to be in receipt of a fair overall rains by early October, if there is not after all going to be reason to believe in a lower than earlier expectations 2018 crop potential for Brazil.   Thus, the start of the new October to March spring and summer rains season for Brazil is going to be closely watched and should it be late or not universal to most of the main coffee districts, has the potential to be fundamentally very supportive for the New York market. 

Such support would be further justified and accentuated by the generally accepted fact that there shall be a deficit coffee supply for the new October 2017 to September 2018 coffee year, albeit that with the large new Central American, Colombian main crop and Vietnam crops, that there is the potential for a surge of front loading supply to the consumer markets.   Which along with the still substantial consumer stock levels, will delay the negative effect of an overall longer-term deficit supply.   Which can only be alleviated by the advent within the last quarter of this forthcoming 2017/208 coffee year, by a significantly larger new Brazil crop and the lack of prospects for such an improved crop, would certainly provide for fundamental long-term market support. 

Conversely in terms of weather and with carry over robusta coffee stocks within Vietnam becoming critically low and with much of the stocks in hand already committed to forward contract sales commitments, there shall need to be an early end to the summer rain season for the country, it the new crop harvest is to start by the second half of October and to bring new crop coffees to the fore, by the second half of November.   Thus, while the markets look to the advent of rains for Brazil, the focus is now very much on the end of the rains for Vietnam and if this is delayed by a month or so and has been the case during many of the previous years, it would with tightening physical robusta coffee supply, be a supportive factor for the presently softer London market.  

The November to December contracts arbitrage between the London and New York markets narrowed yesterday, to register this at 49.40 usc/Lb., while this equates to 35.2% 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 4,345 bags yesterday; to register these stocks at 1,793,207 bags.  There was meanwhile a larger in number 8,603 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 55,997 bags. 

It was a mixed but mostly negative day for the commodity markets yesterday and perhaps influenced by the combination of the combination of some dollar buoyancy and money moving into the buoyant stock markets, which saw the overall macro commodity index showing buoyancy for the day.   The Natural Gas, London robusta Coffee, Cotton, Copper and Orange Juice markets had a day of buoyancy and the Soybean market was steady for the day, while the Oil, Sugar, Cocoa, New York arabica Coffee, Wheat, Corn, 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 0.44% lower, to see this Index registered at 411.05.  The day starts with the U.S. Dollar near to steady and trading at 1.353 to Sterling and at 1.199 to the Euro, while North Sea Oil is steady and is selling at US$ 56.05 per barrel. 

The London and New York markets started the day yesterday on a steady note, to see both markets moving into positive territory and into the early afternoon trade.   As the afternoon progressed the New York market started to come under pressure and moving back to par, while the London market remained within positive territory.  Late in the day the New York market moved back into negative territory and presumably had an influence, to see the London market shed some of its gains. 

The London market ended the day on a modestly positive note and with 50% of the earlier gains of the day intact, while the New York market ended the day on a softer note and with 48.8% of the earlier losses of the day intact.   The ability of the New York market to bounce back and limit its losses and along with the dry weather concerns over Brazil might well assist towards a degree of caution and one might expect to see something of a steady start for early trade today against the prices set yesterday, as follows: 

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

SEP    2026 + 13                                            SEP    138.95 – 1.05

NOV   2005 + 13                                             DEC   140.35 – 1.05

JAN    1993 + 13                                            MAR   143.85 – 1.00

MAR   1991 + 14                                            MAY   146.15 – 0.95

MAY   2002 + 14                                            JUL    148.30 – 1.05 

JUL    2031 + 15                                            SEP    150.50 – 1.05

SEP    2040 + 15                                            DEC   153.75 – 1.10

NOV   2050 + 14                                            MAR   156.90 – 1.15

JAN    2061 + 14                                            MAY   158.85 – 1.20

MAR   2066 + 14                                            JUL    160.70 – 1.25