Coffee Market Report October 26 2017

Following the lowering of the deficit supply forecast by Rabobank, the Marex Spectron have likewise lowered their earlier forecasted deficit coffee supply for this new October 2017 to September 2018 coffee year by 50%, to now forecast a modest deficit supply of approximately 2.2 million bags.   This would be an easy to absorb by the consumer markets deficit, as they look to consumer stocks that are perhaps as much 4 million bags more than what many would consider to be a safe level. 

These modest deficit reports accompany the news of rains over the main coffee districts in Brazil and forecasts for more rains to come, which would support the forecasts for a significantly larger 2018 coffee crop from Brazil and the potential of a surplus coffee supply for the next October 2018 to September 2019 coffee year.   Thus with the reports out of Vietnam of expectations that the summer and autumn rain season shall soon finish and the new crop harvest shall start to come to the fore in volume in two to three weeks’ time, there is little in the way of supportive news coming to the coffee markets at present. 

There are however forecasts of the rising possibility for a new La Niña phenomenon to develop within the Pacific Ocean late this year or early in the new year, which would bring with it some climatic problems for many producer countries.   This factor does however remain very much a possibility rather than a certainty and it must be noted that it would need to be an intense La Niña to have a market affect upon global coffee production and that a mild La Niña would not really be something to worry about and so far, this factor is having little influence upon coffee market sentiment. 

There are continued problems being experienced within Santos port in Brazil, which is the country’s main export port and there are delays being experienced in terms of new crop coffee exports.   This problem related to the delays in completion of the dredging of the port, which is forcing vessels to cut their container capacity to sail out of port.  However, one would imagine that in terms of Brazil coffee supply to the consumer markets, that the authorities shall not sit still and that in the coming months the dredging shall be concluded and that this factor shall not be threatening to longer term global coffee supply. 

The January 2018 to December 2017 contracts arbitrage between the London and New York markets broadened yesterday, to register this at 35.15 usc/Lb., while this equates to 28.32% 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 4,885 bags yesterday; to register these stocks at 1,898,329 bags.  There was meanwhile a smaller in number 1,855 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 53,052 bags. 

The commodity markets encountered some degree of dollar weakness that should have been supportive, but this was not the case yesterday, as many markets were on the back foot and the overall macro commodity index took a softer track for the day.  The Cocoa, Coffee, Cotton, Orange Juice and Soybean markets had a day of buoyancy and the Gold market was steady for the day, while the Oil, Natural Gas, Sugar, Copper, Wheat, Corn and Silver markets had a softer day’s trade.   The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.14% lower, to see this Index registered at 414.20.  The day starts with the U.S. Dollar near to steady and trading at 1.326 to Sterling and at 1.183 to the Euro, while North Sea Oil is steady and is selling at US$ 58.50 per barrel. 

The London market started the day yesterday marginally south of par, while the New York market started the day with some early buoyancy and with the London market soon recovering to see the markets taking a positive stance into the early afternoon trade.   This seemingly and with the support of a weaker dollar assisted to inspire some degree of confidence and with modest volumes of short covering buying within the New York market coming to the fore, there were further gains for this volatile market.   There was however no real excitement or rally and both markets slipped back from the highs to continue for the rest of the day on a sideways modestly positive track.  

The London market ended the day on a positive note and with 76.2% of the earlier gains of the day intact, while the New York market ended the day on a likewise positive note but with only 42.9% of the earlier gains of the day intact.   The positive nature of this close and the possibility that the New York market still might be somewhat oversold, could assist towards a degree of caution and to inspire a steady start for early trade today, against the prices set yesterday, as follows: 

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

NOV   2010 + 17                                             DEC   124.10 + 0.90

JAN    1961 + 16                                            MAR   127.80 + 0.85

MAR   1934 + 14                                            MAY   130.30 + 0.90

MAY   1939 + 13                                            JUL    132.65 + 0.90 

JUL    1962 + 11                                            SEP    134.95 + 0.90

SEP    1969 + 10                                            DEC   138.40 + 0.90

NOV   1975 + 12                                            MAR   141.70 + 0.85

JAN    1978 + 17                                            MAY   143.75 + 0.85

MAR   1977 + 17                                            JUL    145.75 + 0.85

MAY   1982 + 17                                            SEP    147.65 + 0.85