Coffee Market Report November 04 2016

The traditionally conservative in terms of crop reports and forecasts Vietnam Coffee and Cocoa Association who had previously forecasted that the new Vietnam crop might be as much as 20% to 25% lower than the last crop, have revised their estimate to now forecast that this new crop might only be between 10% to 20% lower than the last crop.   This change in the estimated dip in production for the new crop that has already started to be harvested and with it coming from a body that has historically undervalued the coffee crops in Vietnam, would infer that while there shall be a dip in production for the new crop, it might after all prove to be relatively modest in nature.

 

This aside and even if the new Vietnam crop that is dominated by and approximate 95% robusta coffees factor proves to be closer to the past crop, the dismal new conilon robusta coffee crop in Brazil this year and the lower volumes of robusta coffee production in Uganda and Indonesia this year, shall still result in tighter global robusta coffee supply through to at least May 2017.  Leaving Vietnam to continue to dominate the global robusta coffee supply and by nature of having limited competition, to dictate the prices for the medium term. 

 

Meanwhile and while there has been a start to the harvest of the new crop in Vietnam, there are further rains forecasted to impact upon the main coffee districts for this weekend, which shall interrupt the harvest for a few days and likewise, the drying of some of the already harvested coffees.   Fortunately, not a problem for the countries exporters, as most still hold good levels of past crop stocks, so as to fulfil their short-term export commitments. 

 

There was talk within the German coffee market yesterday, that the main industry players were looking to increase their wholesale coffee prices in the new year, as a reaction to the prevailing higher trading range for the coffee markets.   These comments coming from within the world’s third largest coffee consuming nation after the U.S.A. and Brazil has had some positive impact upon market sentiment yesterday, as it indicates a lessening of the effects of price resistance on the part of the industries and would likewise indicate the potential for other leading European industries to follow suit. 

 

The question remains that should this move on the part of the European coffee industries who are the largest consumer market bloc be followed by similar price increases on the part of the North American industries, which shall allow for the industries to proceed with catch up price fixation buying, what direction shall the funds take post the liquidation of strong industry buying pressure.   This one would think shall be a decision that shall be influenced more on the medium than the short term, once the fundamentals of the size of the new Vietnam crop and the rains and progress towards the next Brazil crop become clearer, during the first quarter of the coming year.

 

The March to March contracts arbitrage between the London and New York markets broadened yesterday, to register this at 70.68 usc/Lb., while this equates to a 41.77% 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 decrease by 1,375 bags yesterday; to register these stocks at 1,272,988 bags.  There was meanwhile a larger in volume 11,436 bags dip to the number of bags pending grading for this exchange; to register these pending grading stocks at 13,744 bags.

 

The commodity markets encountered a continued softness for the U.S. dollar yesterday which should have been a supportive factor, but this was not the case and with speculation favouring a U.S. interest rate hike due in December, the overall macro commodity index once again took a softer track for the day.  The New York arabica Coffee, Copper, Corn and Soybean markets had a day of buoyancy and the Cocoa and London robusta Coffee markets were steady for the day, while the Oil, Natural Gas, Sugar, Cotton, Orange Juice, Wheat, 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 0.62% lower; to see this Index registered at 420.19.   The day starts with the U.S. dollar showing a degree of buoyancy and trading at 1.246 to Sterling and 1.109 to the Euro, while North Sea Oil is steady and is selling at 44.10 per barrel.

 

The London and New York markets started the day yesterday on a positive note and with the London market showing hesitant buoyancy, while the New York market took a more positive stance and with both markets taking this track into the early afternoon trade.  As the afternoon progressed the New York market continued to attract support from the funds and to add value, while the London market remained mostly on the positive side of par and taking a mostly sideways track for the day.   The London market continued to end the day on a modestly positive note and with 15.4% of the earlier gains of the day intact, while the New York market that had hit a 21-month high and dipped in late trade, nevertheless ended the day on a very positive note and with 75.3% of the earlier gains of the day intact.    This close would be expected to inspire some degree of confidence but with the both markets looking somewhat overbought and with the potential for some degree of fund exhaustion within the volatile New York market, one might expect to see some degree of pre-weekend corrective and price fixation selling coming into play for the New York market in early trade today against the prices set yesterday, as follows:

 

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

 

NOV     2223 + 9                                                 DEC   165.65 + 2.75

JAN      2166 + 2                                                MAR   169.20 + 2.75

MAR     2172 + 9                                                MAY   171.40 + 2.75

MAY     2180 + 10                                                JUL   173.30 + 2.80

JUL      2185 + 13                                                SEP   175.00 + 2.80

SEP      2192 + 14                                               DEC   177.20 + 2.70

NOV     2198 + 13                                               MAR   179.00 + 2.65

JAN      2206 + 11                                               MAY   180.05 + 2.60

MAR     2219 + 8                                                  JUL   181.00 + 2.60

MAY     2235 + 6                                                  SEP   181.90 + 2.65