Coffee Market Report November 03 2016

The Agricultural Fisheries and Food Authority in Kenya have reported that despite the failure of the usual October and November short rain season that with the input of the new coffee areas in the west of the country, that they foresee that the coffee supply of fine washed Kenyan arabica coffee for this new October 2016 to September 2017 coffee year shall increase by 4.4%, to total 783,333 bags.  This number is however marginally lower than the 800,000 bags that has been forecasted by the coffee trade within the country and it would seem that there shall be little change in coffee supply, for the short to medium term.  

The corrective and profit taking fund and speculative selling within the New York market tapered off yesterday, to indicate that there is still belief in the potential deficit overall coffee supply for this present October 2016 to September 2017 coffee year.   Perhaps supported by the view that the consumer industries are somewhat behind in their price fixation buying, which can be expected to bring more buying into the market and by nature, allow for some profit to be taken out of the extensive net long positions that are being held within the volatile New York coffee market. 

Fundamentally though and while there is no doubt that there shall be a relatively tight supply for robusta coffees for this present coffee year and with unforeseen weather problems for the coming months aside, there is presently really no reason to believe in a short to medium term shortage in overall global coffee supply.  Especially so as there remains good levels of consumer market coffee stocks that are presently the equivalent of approximately three months of roasting demand.   Thus, unless the main brand players within the consumer markets finally step to the fore with price increases and to counter the recent rise of the coffee markets and with the funds already very long, one would think that that there shall be some degree of price resistance that would indicate that the coffee markets might be becoming overbought and thus, a little toppy.  

This might be the view taken within the internal market in Brazil where the country was off the field of play yesterday to celebrate the Dia de Finados or All Souls Day public holiday and with the Brazil Real having dropped back to trade at 3.25 to the U.S. dollar, it might bring some internal market arabica coffee selling into play and the negative effects of exporter price fixation selling into the New York market.  

The March to March contracts arbitrage between the London and New York markets broadened yesterday, to register this at 68.34 usc/Lb., while this equates to a 41.06% 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 1,735 bags yesterday; to register these stocks at 1,274,363 bags.  There was meanwhile no change to the number of bags pending grading for this exchange; to register these pending grading stocks at 25,180 bags. 

The commodity markets encountered a softer U.S. dollar yesterday which should have been a supportive factor, but this was not the case and the overall macro commodity index took a steady to soft track for the day.  The Sugar, Cocoa, Coffee, Wheat, Gold and Silver markets had a day of buoyancy, while the Oil, Natural Gas, Copper, Orange Juice, 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 0.16% higher; to see this Index registered at 422.81.   The day starts with the U.S. dollar tending softer and trading at 1.223 to Sterling and 1.111 to the Euro, while North Sea Oil is near to steady and is selling at 45.05 per barrel. 

The London and New York markets started the day yesterday on a softer note, but with the New York market recovering in early afternoon trade and showing a degree of hesitant buoyancy.   This was followed by a recovery back to par for the London market and with the New York market building in confidence and taking a further step up, the London market moved up into modest positive territory.   The New York market di however falter later in the day and fell back from its highs, while the London market took something of a sideways track trough to the close.   The London market ended the day on a positive note and with 75% of the modest gains of the day intact, while the New York market ended the day on a positive note and with 50.9% of the earlier gains of the day intact.   This close while supportive for confidence does not however detract from the somewhat overbought nature of the markets and with the threat of Brazilian selling, one might expect to see little better than a 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     2214 + 8                                                 DEC   162.90 + 1.45

JAN      2164 + 6                                                MAR   166.45 + 1.45

MAR     2163 + 7                                                MAY   168.65 + 1.50

MAY     2170 + 8                                                  JUL   170.50 + 1.55

JUL      2172 + 7                                                  SEP   172.20 + 1.55

SEP      2178 + 7                                                 DEC   174.50 + 1.50

NOV     2185 + 7                                                 MAR   176.35 + 1.50

JAN      2195 + 7                                                 MAY   177.45 + 1.55

MAR     2211 + 7                                                  JUL   178.40 + 1.55

MAY     2229 + 7                                                  SEP   179.25 + 1.55